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Some time ago a swap dealer entered into a Forward Rate Agreement (FRA) that has a notional value of $25,000,000. The swap dealer agreed to
- Some time ago a swap dealer entered into a Forward Rate Agreement (FRA) that has a notional value of $25,000,000. The swap dealer agreed to pay 4.96% based on quarterly compounding and receive Libor. Libor zero rates (based on continuous compounding are given below.
- What is the value of the FRA to the swap dealer assuming it begins in 9 months and lasts for 3 months?
- Provide an example which shows exactly how the swap dealer can hedge its position in the FRA.
| Maturity (months) | Zero Rate (%) |
| 3 | 4 |
| 6 | 4.5 |
| 9 | 5 |
| 12 | 5.5 |
| 15 | 6 |
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Accounting Ledger Book
Authors: Alpha Planners Publishing
1st Edition
B09VWKPJSG, 979-8432472564
