Your business needs to borrow 8,000,000 euros in 6 months which you can repay in 3 months. 

In order to hedge against a rise in interest rates in 6 months' time, you purchase an FRA (6 9) with a bank at an FRA rate of 2%, with a principal of EUR 8 000 000.

8. a) If in 6 months' time the interest rate rose to 2.5%, who would pay compensation?

8. b) What would be the value of this compensation? 8. c) If you had instead used a swap contract to hedge against an interest rate risk, what would have been the consequences of an increase in interest rates on the value of the swap for the party that 1/ receives the fixed rate? 2/ pays the fixed rate?