A firm will expand its production facilities during the current year. In three months time it will need $500,000$ EURO in additional financing for a period of $9$ months, which will be borrowed from a bank at the $9$ months Eurobond rate. The firm fears a change in interest rates during the next three months, as so$,$ it wants to hedge this risk by using a forward rate agreement $($FRA$).$

Considering the following spot Eurobond rates:

Maturity $3$ Months $6$ Months $9$ Months $12$ Months

Rate $1\mathrm{.}03\%1\mathrm{.}26\%1\mathrm{.}4\%1\mathrm{.}53\%$

A$]$ Describe the interest rate risk exposure of this firm

B$]$ Describe how it can hedge this risk using FRA

C$]$ Determine the corresponding FRA rate.