What are the risks in a FRA if you are the buyer?
Answer to relevant QuestionsAssume that you want to speculate on how six month cash market LIBOR now equal to 1.95% will move over the next year. You believe that consensus forecasts of future rates are too high. You can enter into an FRA and agree ...A basic interest rate swap is priced as a zero net present value transaction. Explain what this means. Use the two year swap data to demonstrate your arguments. Suppose that the yield curve on Eurodollars is sharply upward- sloping. a. Will premiums on interest rate floors on three- month LIBOR be high or low? Explain. b. Will premiums on interest rate caps on three- month LIBOR be ...Explain why cross hedges generally exhibit greater risk than hedges using a futures contract based on the underlying cash instrument hedged. In many cases, banks do not permit depositors to spend the proceeds of a deposit until several days have elapsed. What risks do banks face in the check clearing process? Does this justify holds on checks?
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