Financial Market product

Good Student
Posts: 23
Joined: Sat Jun 25, 2016 8:13 am

Financial Market product

Postby mayankmundhra30 » Thu Aug 25, 2016 6:58 pm

Suppose 3 months and 6 months LIBOR spot rates are 5% and 6%. An investor enters into a FRA in which he will receive 9% on a principle of $8,000,000 between 3 and 6 months. What is the value of a FRA?
Choose one answer.
a. $140,000 Incorrect
b. $560,000 Incorrect
c. $135,862.37 Incorrect
d. $38,817.82 Correct
The correct answer is D
3 months forward rate after 3 months is: 0.06+(0.06-0.05)(1/2-1)= 0.07
Value of the FRA = $8,000,000 * (0.09-0.07) * (0.25) * e^(-0.05*0.5)

In the above problem could you please explain the denominator part? Why 0.5 is there in the denominator. Shouldn't it be 0.25. Is it a 3X6 FRA??

Return to “FRM Part I”


Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.