Question $2$

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 $4\mathrm{.}6\%.$ There are actually $92$ days in

the three$-$month FRA period. Which one of following statements is correct?

If the settlement rate is $4\mathrm{.}8\%$ three months from today, then the FRA is worth $$1009\mathrm{.}84$

Without the FRA, the bank will lose if the market interest rate drops at the end of three months.

If the settlement rate is $4\mathrm{.}8\%$ three months from today, then the buyer pays the seller.

To hedge the loss caused by maturity mismatch, the bank should be a seller of the FRA.

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. Question $1$

$5$ pts

Assume Carlton enters into a three$-$year fixed$-$for$-$fixed swap agreement to receive Swiss Franc and pay U$.$S$.$ dollar annually, on a notional amount of $$7,000,000.$ The spot exchange rate at the time of the swap is SF$0\mathrm{.}8/$$$.$ Assume that one year into the swap agreement Carlton decides it wishes to unwind the swap agreement and settle it in dollars. Assuming that a two$-$year fixed rate of interest on the Swiss Franc is now $2\mathrm{.}59\%,$ and a two$-$year fixed rate of interest on the dollar is now $5\mathrm{.}90\%,$ and the spot rate of exchange is now SF$0\mathrm{.}747/$$$.$ To Carlton, what is the net present value $($in dollar$)$ of the swap agreement? $($Keep the sign and two decimal places.$)$

$\backslash$table$[[,$Euro$-,$Swiss franc,U$.$ S$.$ dollar,Japanese yen$],[$Years$,$Bid,Ask,Bid,Ask,Bid,Ask,Bid,Ask$],[2,3\mathrm{.}08,3\mathrm{.}12,1\mathrm{.}68,1\mathrm{.}76,5\mathrm{.}43,5\mathrm{.}46,0\mathrm{.}45,0\mathrm{.}49],[3,3\mathrm{.}25,3\mathrm{.}29,2\mathrm{.}12,2\mathrm{.}17,5\mathrm{.}54,5\mathrm{.}59,0\mathrm{.}56,0\mathrm{.}59]]$