A bank has a mismatch between the maturities of its current deposits (a liability to the bank) and its current mortgages (an asset to the bank). The deposits mature in six months while the mortgages mature in nine months. If interest rates rise, will this help or hurt the bank?

The amount the bank needs to hedge is $100,000,000. The current three-month LIBOR rate is 4%, the six-month LIBOR rate is 4.5%, and the nine-month LIBOR rate is 5%. What type of FRA (3x6, 3x9, etc.) should the bank buy or sell?

If the three-month, six-month, and nine-month LIBOR rates settle at 5%, 5.5%, and 5.8% how much does the bank earn or lose on the FRA? Assume each month has 30 days. *MUST SHOW ALL WORK*