Question 2

A bank sells a three against six $1,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three-month Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate with the buyer is 5.37 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 4.94 percent. Determine how much the FRA is worth. (report postive amount, with cents)

Ans: _____________________

Question 3

Grecian Tile Manufacturing of Athens, Georgia, borrows $900,000 at LIBOR plus a lending margin of 1.15 percent per annum on a six-month rollover basis from a London bank. If six-month LIBOR is 4.64 percent over the first six-month interval and 5.30 percent over the second six-month interval, how much will Grecian Tile pay in interest over the first year of its Eurodollar loan? (USD, no cents)

Ans: _____________________