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The treasurer of Company A expects to borrow $15,000,000 in 90 days from now. The treasurer...

The treasurer of Company A expects to borrow $15,000,000 in 90 days from now. The treasurer expects short-term interest rates to rise during the next 90 days. In order to hedge against this risk, the treasurer decides to use a FRA that expires in 90 days and is based on 90-day LIBOR. The FRA is quoted at 4%. At expiration, LIBOR is 4.5%. Assume that the notational principal on the contract is $15,000,00.

Calculate the payoff of entering the FRA. (Hint: you need to firstly figure out whether Company A is interested in Long or Short)

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jeff jeffy answered 2 years ago
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