3. Assume your company needs to borrow 8,000,000 in six months that you will be able to...
Fantastic news! We've Found the answer you've been seeking!
Question:
3. Assume your company needs to borrow 8,000,000 in six months that you will be able to pay back three months later. In order to hedge against a rise in interest rates in six months, your company enters into an (69) FRA with a bank at 2% FRA rate, with a notional principal of 8,000,000.
a) If in 6 months, the interest rate increases to 2.5%, who will pay the compensation?
b) What will be the value of this compensation?
c) If you had instead entered into a swap contract to hedge against the interest rate risk, what would have been the consequences of an increase in interest rates on the value of the swap for the party that 1 / receives the fixed rate? 2 / pays the fixed rate?
Posted Date: