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3) The bank takes a long position for a 3 9 FRA (Forward Rate Agreement) for $1,000,000. The agreement rate is 5 % while the
3) The bank takes a long position for a 3 9 FRA (Forward Rate Agreement) for $1,000,000. The agreement rate is 5 % while the settlement rate is 4 %. There are 180 days for a six-month FRA.
a) At the settlement date, who is going to pay? the buyer of the FRA or the seller? (20points)
b) Determine the value of the FRA. (30points)
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