Question: Hi could you please help with the below question. In May 2012, a bank will issue a 4/7 FRA referenced to BBSW with a guaranteed

Hi could you please help with the below question.

In May 2012, a bank will issue a 4/7 FRA referenced to BBSW with a guaranteed rate of 4.5% p.a.. Bank bill futures for September 2012 delivery are priced at 95.75.Assume there are no transaction costs and no spread between FRA borrowing and lending rates, and 30-day months.

i)What would be the arbitrage profit on one futures contract?

ii) What would be the net gain (or loss) if the 90-day bank bill rate turns out to be 6% in September 2012?

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Given Information FRA Forward Rate Agreement 47 FRA referenced to BBSW Bank Bill Swap Rate Guaranteed FRA Rate 45 pa Bank Bill Futures for September 2012 Delivery Priced at 9575 No transaction costs o... View full answer

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