Question
Orange financial group wants to fix the borrowing rate and enters a forward rate agreement (FRA) with Blueberry bank. The information is as below: Expires/settles
Orange financial group wants to fix the borrowing rate and enters a forward rate agreement (FRA) with Blueberry bank. The information is as below:
Expires/settles in 60 days. Notional principal amount is 300million. Market rate is based on 180-day LIBOR. The forward rate is 3%.
Assume the actual 180-day LIBOR 60 days from now is 2.5%.
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a) Calculate the cash settlement payment at expiration and identify which party makes the payment. (8 marks)
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b) This swap is called a 2x6 swap. Is it correct? Explain. (2 marks)
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Contemporary Business Mathematics with Canadian Applications
Authors: S. A. Hummelbrunner, Kelly Halliday, Ali R. Hassanlou, K. Suzanne Coombs
11th edition
134141083, 978-0134141084
