Briefly discuss collateralized debt obligations

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A bank sells a “three against six” $3,000,000 forward rate agreement (FRA) for a three- month period beginning three months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three- month Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate (AR) with the buyer is 5.5 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate (SR) is 4.875 percent. Determine how much the FRA is worth and who pays who—the buyer pays the seller or the seller pays the buyer.

A. Determine how much the FRA is worth and who pays who—the buyer pays the seller or the seller pays the buyer

B. Why are the FRA so popular and what important role they play in the Eurocurrency market

C. Discuss the causes of and the solution(s) to the international banking crisis that involve less-developed countries

D. Discuss structured investment vehicles (SIVs)

E. Briefly discuss collateralized debt obligations (CDOs)

Reference no: EM13814022

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