Q3: (FRA and FX forward Pricing & Valuation - use the simple interest method)

Table 1 below has spot exchange rates and S&P 500 Index qutoed on June 4, and Aug 4, 2008. Table 2 has spot LIBOR rates on EURO (EUR) and US Dollars (USD) for maturities ranging from 1 week to 12 months announced by the British Banker's Association (BBA) on June 4, Aug 4, 2008, and September 4, 2008. Use 30/360 day count method.

A) What should be the 6-mo FRA rates three months from June 4 (3X9 FRA) for Euro?3X9 FRA on USD?

B) Calculate the market value (in EUR) on Aug 4 of a long position of the EURO FRAin A) above. The notional principal is EUR 10,000,000.

C) What is the market value in USD of the EURO FRA in B) above?

TABLE 1: S&P 500 Index andFX rateDate4-Jun-084-Aug-08FX rate - EUR0.64740.6415EUR/USDS&P 5001377.21249.01TABLE 2: LIBOR (British Bankers Assn)Retrieved from http://www.bba.org.uk/.Quote Dates4-Jun-084-Aug-084-Sep-08EUR (% per annum)1w4.178754.391884.398752w4.230004.416884.420631m4.459384.481884.512502m4.686884.758134.756883m4.861884.965004.956254m4.892505.018755.085635m4.914385.103755.125006m4.936885.156255.163757m4.965005.180635.188758m4.992505.208135.215009m5.022505.241885.2425010m5.052505.276885.2712511m5.081885.320635.2975012m5.106255.356255.32750USD (% per annum)1w2.383132.410632.378752w2.415002.444382.417501m2.450002.461252.486882m2.569382.664382.684383m2.671882.798132.815004m2.751252.895002.946255m2.819383.005633.023756m2.891253.090633.113137m2.927503.115633.120638m2.963133.136253.125639m2.995633.156883.1337510m3.026883.184383.1468811m3.061883.214383.1637512m3.097503.241883.18125