You are an analyst at Everbrite Corp. serving as Asst to the Treasurer. You are based in Deligqanistan, in the Republic of Kirksytaniland. Your boss is on vacation when news of political instability in the Middle East causes interest rates to jump higher. Checking LIBOR, 90 day rates are seen as high as 3.85. This is remarkable, as only yesterday 90 day rates were 1.73%.

You wonder if there are ways to take advantage of this jump in rates. You remember that a large customer will be making a payment in the next month or two of $35 mill US. Your boss always invests the money so that at the end of the year, remittance is made to your parent back in the states as one end of year payment.

You check your banking sources and find you can lock in a rate using a FRA.Currently, an FRA can be bought with a Forward rate of 2.25. This rate is less than you thought it would be, but is up 0.40 from yesterday.

Current rates reflect the upheaval of the markets, but haven't moved as high as you thought.You want to lock in the rate, so you call your banker. He doesn't have much time given the volatility in the markets. He asks "What do you want?". You mention the FRA and he says he can offer you a 3 X 9. And asks if you want it. You ask the rate again, and in a huff he says 2.25 or something like that. You say fine, I'll take it. He says "o.k, you are long", and hangs up.

Spot rates are dropping and are currently 1.97. The FRA is 2.25 for 6 months.You get an invoice for 2.13.

Please respond to the situation by commenting on the analyst's actions. Was the analyst correct to go long? Would it have been better if he went short or just stayed out of the market.