Question: A bank is considering using a three against six ( $ 2,000,000 ) FRA to cover its potential loss. The purpose of the FRA is

$A bank is considering using a \"three against six\" \\( \\$$

A bank is considering using a \"three against six\" \$ \\$ 2,000,000 \$ FRA to cover its potential loss. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a six-month Eurodollar loan and having accepted a three-month Eurodollar deposit. The agreement rate with the buyer is \4.6. There are actually 92 days in the three-month FRA period. Which one of following statements is correct? To hedge the loss caused by maturity mismatch, the bank should be a seller of the FRA. If the settlement rate is \4.8 three months from today, then the FRA is worth \$ \\$ 1009.84 \$ To hedge the risk caused by maturity mismatch, the bank could take the buyer's position if it uses the Euro-Dollar Interest Rate Futures instead. Without the FRA, the bank will lose if the market interest rate drops at the end of three months. If the settlement rate is \4.8 three months from today, then the buyer pays the seller

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