Ford has a $20 million Eurodollar deposit maturing in two months that it plans to roll over for a further six months. The company's treasurer feels that interest rates will be lower in two months time when rolling over the deposit. Suppose the current LIBOR6 is 7.875%.

a. Explain how Ford can use an FRA at 7.65% from Banque Paribas to lock in a guaranteed six-month deposit rate when it rolls over its deposit in two months.

b. After two months, LIBOR6 has fallen to 7.5%. How much will Ford receive/pay on its FRA? What will be Ford's hedged deposit rate for the next six-month period?

c. In two months, LIBOR6 has risen to 8%. How much will Ford receive/pay on its FRA? What will be Ford’s hedged deposit rate for the next six months?