320772
Question 1
Question
Company A expects a $10 million receipt one month's (30 days) time and will invest these funds for 3 months (91 days) until they are required in the business.
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Which of the following transactions would be MOST appropriate for company A to use to fix interest rate on the future deposit?
Answer
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a) Buy 1 v 3 FRA
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b) Sell 1 v 3 FRA
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c) a) Buy 1 v 4 FRA
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b) Sell 1 v 4 FRA
Question 2
Question
Company A expects a $10 million receipt one month's (30 days) time and will invest these funds for 3 months (91 days) until they are required in the business.
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Company A hedges its exposure with an FRA contract at 6.2% which is held to maturity. The outturn market rate on settlement of the contract is 7.3%. What is the best estimate of the FRA compensation amount?
Answer
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a) $25,500
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b) $26,900
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c) $27,300
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d) $27,800
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