FRA

naresh.thkr
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FRA

Postby naresh.thkr » Tue Nov 06, 2012 11:08 am

A bank has entered into a forward rate agreement to pay a fixed rate of 4.15 %( semiannually compounded) on $9 million between 6 and 9 months. If the LIBOR rates in 3 months, 6 months and 9 months are 5%, 4.5% and 3.5% respectively (continuously compounded rates). The value of forward rate agreement for the bank would be closest to:
Choose one answer.
a. Gain of $3500
b. Loss of $3500
c. Gain of $4300
d. Loss of $4300

Plz solve.

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swarnendupathak
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Re: FRA

Postby swarnendupathak » Wed Nov 07, 2012 4:51 pm

I am not getting the answer that are mentioned in the options.... can someone solve this problem...

Swarnendu

naresh.thkr
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Posts: 25
Joined: Sat Aug 11, 2012 7:02 pm

Re: FRA

Postby naresh.thkr » Thu Nov 08, 2012 1:19 pm

D/a @Pristine,

Plz help in solving this prob.

swarnendupathak
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Posts: 119
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Re: FRA

Postby swarnendupathak » Thu Nov 08, 2012 2:01 pm

@ pristine... can u please formulize this problem???

Swarnendu

swarnendupathak
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Posts: 119
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Re: FRA

Postby swarnendupathak » Thu Nov 08, 2012 5:01 pm

Can anyone pleae solve this problem???

Swarnendu

content.pristine
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Re: FRA

Postby content.pristine » Fri Nov 09, 2012 5:49 pm

Relax Guys!
This question is wrong.
What is its source??
8-)

swarnendupathak
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Re: FRA

Postby swarnendupathak » Fri Nov 09, 2012 6:00 pm

Ok...
Just one simple question.. for valuing the FRAs, whether we need forward rate & settlement rate with the same compounding frequency with that of settlement period???? And also please state, while valuing the FRAs, we need to discount the same to T1 or to To. Please help.

Swarnendu

naresh.thkr
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Posts: 25
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Re: FRA

Postby naresh.thkr » Sat Nov 10, 2012 11:05 am

Plz refer Q. 31 in Mock test 4th Nov.

content.pristine
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Re: FRA

Postby content.pristine » Sat Nov 10, 2012 11:07 am

Hi Swarnendu,

The interest rates need to be the same compounding frequency.

The cash transferred from one party to the other needs to be discounted to the FRA settlement date.. (That is not T=0.)

8-)

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: FRA

Postby content.pristine » Sat Nov 10, 2012 11:49 am

Yes. The rates in the question do not match the answer. This question is wrong.
8-)


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