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1)A bank made a three-month Eurodollar loan and accepted a six-month Eurodollar deposit . The bank considers a 3 6 FRA for $10,000,000. The agreement

1)A bank made a three-month Eurodollar loan and accepted a six-month Eurodollar deposit. The bank considers a 3 6 FRA for $10,000,000. The agreement rate is 6 percent. There are actually 90 days in the three-month FRA period. Assume that the settlement rate is 5 percent.

a)Should the bank buy or sell the FRA? (20points)

b)At the settlement date, does the buyer of the FRA pays the seller or the seller of the FRA pays the buyer? (20points)

c)Determine the value of the FRA. (20points)

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