Company Apple agrees to enter into an FRA agreement with Company Orange in which  Company A borrows $ 50,000,000 in 6-month time for a period of 9 months, and  Company B invests $ 50,000,000 in 6-month time for a period of 9 months. The 6- month interest rate is 0.75% per annum and the 9-month interest rate is 0.90% per  annum.  

What is the interest rate that both companies agreed upon? 

Suppose that at the expiry date of the FRA, the 6-month interest rate is 0.81% per  annum and the 9-month interest rate is 0.96% per annum, calculate the  compensatory payment and which party receives it?  

Answer rating: 100% (QA)

To determine the interest rate that both companies agreed upon we need to use the FRA formula FRA Rate Spot Rate Forward Rate x d2 d1 where d1 is the ... View the full answer