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In 30 days, a corporation needs to borrow $50 million for 60 days and wants to hedge against a possible interest rate increase by entering
In 30 days, a corporation needs to borrow $50 million for 60 days and wants to hedge against a possible interest rate increase by entering into a FRA today. The company gets a quote of 4.8% for 60-day LIBOR on a 30-day FRA contract with a notional principal of $50 million. The company proceeds with entering into the FRA, and 30 days when the contract expires, 30-day LIBOR is 4.5% and 60-day LIBOR is 5%.
At settlement, the company:
A | pays $16,529. |
B | collects $16,529. |
C | pays $24,814. |
D | collects $24,814. |
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