Explain the income of a FRA dealer and how they manage their exposure to interest rate...
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Explain the income of a FRA dealer and how they manage their exposure to interest rate risk and default risk. (2 marks) b) Demonstrate how a fund manager can hedge a planned investment in $50 million (face value) parcel of 90-day NCDs next month with a 1:4 FRA at 4.2% assuming the spot rate next month is 3.95%. (4 marks) 1 Explain the income of a FRA dealer and how they manage their exposure to interest rate risk and default risk. (2 marks) b) Demonstrate how a fund manager can hedge a planned investment in $50 million (face value) parcel of 90-day NCDs next month with a 1:4 FRA at 4.2% assuming the spot rate next month is 3.95%. (4 marks) 1
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a A FRA dealer is a financial institution that specializes in providing hedging services to clients ... View the full answer
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