You bought a CAD 8,000,000.00 6x9 FRA at 1.95%. The settlement rate is 3-month (90-day) BBA LIBOR, which is fixed at 0.9500%. What is the settlement amount at maturity?
A) You pay CAD 20,000.00
B) You receive CAD 20,000.00
C) You pay CAD 19,952.61
D) You receive CAD 19,952.61

Question

Quizplus · Accepted Answer

The settlement amount is calculated as the difference between the fixed rate in the FRA and the actual 3-month LIBOR rate observed on the settlement date, multiplied by the notional amount and the appropriate day count fraction. 
In this case, the settlement rate is 0.9500% and the FRA rate is 1.95%, resulting in a difference of 1.00%. 
The notional amount is CAD 8,000,000.00 and the appropriate day count fraction is 90/360. 
Therefore, the settlement amount at maturity is:
CAD 8,000,000.00 x 1.00% x 90/360 = CAD 19,952.61.
Therefore, the correct answer is C, you pay CAD 19,952.61.

You Bought a CAD 8,000,000