A bank bought a "three against six" $5,000,000 FRA for a three-month period beginning three months from today and ending six months from today.The reason that the bank bought the FRA was to hedge: the bank accepted a 3-month deposit and made a six-month loan.The agreement rate with the seller is 5 percent.Assume that three months from today the settlement rate is 5.25 percent.Who pays whom? How much? When? The actual number of days in the FRA is 90.
A) The bank pays $3,084.52 at the end of 3 months
B) The bank pays $3,084.52 at the end of 6 months
C) The counter party pays $3,084.52 at the end of 3 months
D) The counter party pays $3,084.52 at the end of 6 months
Correct Answer:
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