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Determine the fra rate-cu corporation

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Reference no: EM132682105

You are the treasurer of CU Corporation. When you make an investment appraisal, you know that the company requires borrowing USD 1 million in six months' time for a six-month period. If you borrow today, you have to pay 6-month LIBOR. The current 6-month and 12-month LIBOR are at 0.89465% p.a. and 0.9267% p.a., respectively. You forecast that the LIBOR may rise to 1.30% p.a. in six months' time. You use 360-day year convention.

(a) Identify the FRA in which you are interested in this case.

(b) Determine the FRA rate.

(c) As anticipated by you, the 6-month LIBOR rose during the waiting period. In six- month's time, the 6-month LIBOR fixes at 1.26222% p.a. Determine the payment made to or by the company to settle the FRA contract.

Reference no: EM132682105

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