ABC bank wants to fix the lending rate and enters a forward rate agreement (FRA) with Z bank. The information is as below:

The FRA expires/settles in 30 days.

Notional principal amount is 100million.

Market rate is based on 120-day LIBOR.

The forward rate is 5%.

Assume the actual 120-day LIBOR 30 days from now is 4%

a. Calculate the cash settlement payment at expiration and identify which party makes the payment. (8 marks)

b. What is the type of FRA? (2 marks)