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3. aandnbspandnbspandnbsp company a agrees to enter into an fra agreement...

# Question: aandnbspandnbspandnbsp company a agrees to enter into an fra agreement...

###### Question details

a)    Company A agrees to enter into an FRA agreement with Company B in which Company A borrows $40,000,000 in 6-month time for a period of 9 months, and Company B invests$ 40,000,000 in 6-month time for a period of 9 months. The 6-month interest rate is 0.77% per annum and the 9-month interest rate is 0.89% per annum.

(i).        What is the interest rate that both companies agreed upon?

(ii).        Suppose that at the expiry date of the FRA, the 6-month interest rate is 0.81% per annum and the 9-month interest rate is 0.96% per annum, calculate the compensatory payment and which party receives it?

(iii).        Suppose that at the expiry date of the FRA, the 6-month interest rate is 0.79% per annum and the 9-month interest rate is 0.86% per annum, calculate the compensatory payment and which party receives it?