Today, William Tebaux Banking Group (WTBG) of Wichita Kansas sold a “three against nine” EUR 20,000,000 forward rate agreement (FRA).

The agreement rate with the buyer is 7.0 percent per annum.

There are actually 181 days in the six months FRA period. You may assume that three months from today, the settlement rate is 6.0 percent per annum.

For numerical answers, give your answer to two decimal places unless stated otherwise, and do not enter any symbols such as dollars, commas, or percent signs.

REQUIRED:

(i) Calculate the amount of the payment made between the buyer and the seller. 

EUR __________

(ii) Usually the buyer of an FRA is a (borrower/lender) looking to hedge interest rate risk.

(iii) Will the buyer pay the seller or the seller pay the buyer in this case?

Answer rating: 100% (QA)

Answer i The amount of the payment made between the buyer and the seller is EUR 180556 ii The buyer ... View the full answer