Question
A three-against-six FRA has an agreement rate of 6.75 % p.a.. You believe three-month LIBOR in three months will be 7.425 % p.a.. The current
A three-against-six FRA has an agreement rate of 6.75 % p.a..
You believe three-month LIBOR in three months will be 7.425 % p.a..
The current interest rates for a three-month and a six-month instruments are 5.25 % p.a. and 6.95 % p.a..
You decide to take a speculative position in a FRA with a $1,000,000 notional value.
There are 92 days in the FRA period.
Determine whether you should buy or sell the FRA and what your expected profit will be if your forecast is correct. Round your answer to the nearest interger (5 MARKS)
What is the value of the expected profit as of today? (2.5 MARKS)
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