Which party to fra is required to make a payment and why

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Reference no: EM133326353

Case: Your company needs to borrow $10 million in five months' time for a period of six months (180 days). You are concerned that the changes in interest rates will be unfavourable. You approach an FRA dealer, who provides the following forward quotations:

5Mv11M(19): 8.75-8.55

5Mv6M(19): 8.65-8.45

Required:

Question 1: What will be the agreed rate if you enter and FRA agreement with this dealer? Explain your answer.

Question 2: Assuming the reference rate on the settlement date is 7.5 per cent, which party to FRA is required to make a payment and why?

Question 3 Calculate the compensation amount on settlement date. Show all calculations.

Reference no: EM133326353

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