Northern Rock Bank (the seller) entered into a "three against six" FRA with Southern Cross Bank (the buyer).

Assume that: Notional Amount = $4,000,000 Settlement Rate (SR) (i.e., three-month market LIBOR) = 5% Agreement Rage (AR) = 6% Actual number of days in the three-month agreement period = 91

rev: 05_17_2018_QC_CS-127292

Multiple Choice

• Northern Rock Bank will pay Southern Cross Bank a cash settlement at the end of the 91-day FRA period.

• Northern Rock Bank will pay Southern Cross Bank a cash settlement at the beginning of the 91-day FRA period.

• Southern Cross Bank will pay Northern Rock Bank a cash settlement at the beginning of the 91-day FRA period.

• Southern Cross Bank will pay Northern Rock Bank a cash settlement at the end of the 91-day FRA period.