Accounting

1. Suppose you are working as a treasurer in Citibank and expect to borrow PKR 25 million at KIBOR + 0.3% in one years' time which you will repay after a year. The current market interest rate is 6 percent. You are considering a forward rate agreement (FRA) to lock in the interest rate and gather the following information. FRA Term Contract Rate IV7 6% 3v6 6.05% 6v12 6.10% 12v18 6.15% 12v24 6.20% a) Given the information provided, formulate an FRA strategy (1 mark) b) Draw the swap structure and calculate the net cost (5marks) c) If at settlement the KIBOR turns out to be as follows, what is the FRA settlement amount, will you pay it or receive it? (4 marks) KIBOR As on 1-Jun-21 Tenor DID OFFER 1 - Week 5.91 7.41 2 - Week 6.95 7.45 1 - Month 7.03 7 53 3 - Month 7.24 7.49 6 - Month 7.48 7.71 9 - Month 7.53 8/03 1 - You 7.58 8.08 Data Source: heuten