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Your company has a liability due 1.5 years from now which is based off of a fixed stated (quoted) annual rate with semi-annual compounding. Your
Your company has a liability due 1.5 years from now which is based off of a fixed stated (quoted) annual rate with semi-annual compounding. Your company's analysts are forecasting that interest rates will fall. How can you use a FRA to take advantage of this forecast? Describe your position in the FRA, the cash flows, and the details about the FRA. Please use a diagram to show the cash flows with a time-line (i.e. TO, T, and Tz.) and use a diagram to show the cash flows between your company and the other two institutions. Let's say as time passes can your company exit out of the FRA before it matures? How can your company do this? What needs to happen? Under what scenario would you prefer to exit early? Your company has a liability due 1.5 years from now which is based off of a fixed stated (quoted) annual rate with semi-annual compounding. Your company's analysts are forecasting that interest rates will fall. How can you use a FRA to take advantage of this forecast? Describe your position in the FRA, the cash flows, and the details about the FRA. Please use a diagram to show the cash flows with a time-line (i.e. TO, T, and Tz.) and use a diagram to show the cash flows between your company and the other two institutions. Let's say as time passes can your company exit out of the FRA before it matures? How can your company do this? What needs to happen? Under what scenario would you prefer to exit early
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