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2. This question allows you to demonstrate your learning achievements from your study of interest rate risk and FRAs. a)Suppose that in January the BBSW

2. This question allows you to demonstrate your learning achievements from your study of interest rate risk and FRAs.

a)Suppose that in January the BBSW was 3.45% for 30 days, 3.49% for 60 days and 3.53% for 90 days. Calculate the one-month implicit forward rates (1r2and2r3). (2marks)

b) What is a yield curve? Explain how yield curves are constructed. (2 marks)

c)Explain how a borrower could use a FRA contract to hedge the interest rate riskposed by a bill facility. (2marks)

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