t is now the 31^st January. The Treasurer of Sigma Company is reviewing cash forecast and funding requirements and has identified the need for the following transactions:

Transaction 1:

Sigma Company will have a surplus of 1 million from the 1^st of May for 3 months, which will need to be deposited to earn additional interest. The Treasurer has seen inverted interest rate yield curves in the financial press, so is considering using a 3v6 FRA quoted at 5% - 5.6% to hedge the interest rate risk exposure. He is also considering the use of interest rate options as an alternative strategy.

What is the payment/receipt payable on the FRA if the reference interest moves to 5.5% on the 1^st May?

Select one:

a. 250 payment

b. 250 receipt

c. 1,250 payment

d. 1,250 receipt