Correct! Suppose that in order to hedge interest rate risk on your borrowing, you enter into...
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Correct! Suppose that in order to hedge interest rate risk on your borrowing, you enter into an FRA that will guarantee a 5.7% effective annual interest rate for 1 year on $2,000,000. On the date you borrow the $2,000,000, the actual interest rate is 5.0%. To settle the FRA on the date the loan is repaid, you would... pay $14,000. receive $14,000. receive $13.333. pay $13,333. Correct! Suppose that in order to hedge interest rate risk on your borrowing, you enter into an FRA that will guarantee a 5.7% effective annual interest rate for 1 year on $2,000,000. On the date you borrow the $2,000,000, the actual interest rate is 5.0%. To settle the FRA on the date the loan is repaid, you would... pay $14,000. receive $14,000. receive $13.333. pay $13,333.
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