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Postby chandniwadhwani92 » Tue Oct 14, 2014 7:17 pm

Payment to the Long at Expiry=

Notional*(Rate at Settlement - FRA Rate) (days/360)/1 (Rate at Settlement days/360)
In this rate at settlement would be T9 OR T3

If at T9= 4%
T6= 6%
T1= 5%


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Postby edupristine » Fri Oct 17, 2014 6:43 am

Follow the example below to understand the concept:

If the no of days to expiration is 90 days, and underlying rate is 180 day LIBOR, then the rate at settlement would be the value of the 180 day LIBOR at the expiration of 90 days. So effectively , in my example it will be the rate after (90 +180) days or 9 months ie T9.

Your question is incomplete. Neither the expiry rate is mentioned nor the underlying rate is mentioned. Following the logic from my example, you should now be able to figure out the rate of settlement for your question.

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