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Consider a FRA where S&L Inc. agrees to lend $100 mil. to a FRA dealer at a fixed rate for 1 year starting in 5years.
- Consider a FRA where S&L Inc. agrees to lend $100 mil. to a FRA dealer at a fixed rate for 1 year starting in 5years. The contractual rate is X per annum. Assume that in 5 years the realized 1-year LIBOR is 6.5% perannum. At FRAs settlement date the dealer pays S&L Inc., therefore it must be that X is ___ and thesettlement amount equals ______.
- less than 6.5%; S&Ls gain divided by 1.065
- equals to 6.5%; S&Ls gain divided by 1.065
c. greater than 6.5%; S&Ls gain divided by 1.065
- less than 6.5%; S&Ls gain in divided by (1+X)
- greater than 6.5%; S&Ls gain divided by (1+X)
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