## FRA

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

### FRA

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:
a. Gain of \$3500
b. Loss of \$3500
c. Gain of \$4300
d. Loss of \$4300

Plz solve.

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swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

### Re: FRA

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

Swarnendu

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

### Re: FRA

D/a @Pristine,

Plz help in solving this prob.

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

### Re: FRA

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

Swarnendu

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

### Re: FRA

Can anyone pleae solve this problem???

Swarnendu

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

### Re: FRA

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

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

### Re: FRA

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
Good Student
Posts: 25
Joined: Sat Aug 11, 2012 7:02 pm

### Re: FRA

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

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

### Re: FRA

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.)

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

### Re: FRA

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