Question 3: Forward Rate Agreement (FHA) (2/ 10) Suppose you need to pay $1M to nance a project in 3 months. Bank ABC will provide a one year loan with the amount of $1M in 3 months and bank XYZ offers a 3mthx15mth FRA with notional value of $1M and forward rate 7'0! 3",", mm", = 10% (annually compounded but not continuously compounded). (i) What should you do to hedge your borrowing cost? (ii) Supp0se the one year interest rate (annually compounded) in 3 months rises to 12%. How much money do you owe Bank ABC in 15 months? When and how much money will you payfrecaive from bank XYZ? What are your actual cost of borrowing? (iii) Redo part (ii) assuming the one year interest rate (annually compounded} drops to 5% in 3 months