State the terminology used to identify the fra in which the

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A corporate treasurer needs to hedge the risk of the interest rate on a future transaction. The risk is associated with the rate on 180-day Euribor in 30 days. The relevant term structure of Euribor is given as follows: 30-day Euribor 5.75% 2 10-day Euribor 6.15%

A. State the terminology used to identify the FRA in which the manager is interested.

B. Determine the rate that the company would get on an FRA expiring in 30 days on 180-day Euribor.

C. Suppose the manager went long this FRA. Now, 20 days later, interest rates have moved significantly downward to the following:

10-day Euribor

5.45%

190-day Euribor

5.95%

The manager would like to know where the company stands on this FRA transaction. Determine the market value of the FRA for a €20 million notional principal.

D. On the expiration day, 180-day Euribor is 5.72 percent. Determine the payment made to or by the company to settle the FRA contract.

Reference no: EM13576215

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