From the following CAD rates: 1M (31-day) CAD deposit 0.95% 1x2 CAD (30-day) FRA 1.21% 2x3 CAD (31-day) FRA 2.01% Calculate the 3-month implied cash rate.
A) 1.42%
B) 1.39%
C) 2.01%
D) 4.21%

Question

From the following CAD rates: 1M (31-day) CAD deposit     0.95% 1x2 CAD (30-day) FRA     1.21% 2x3 CAD (31-day) FRA     2.01% Calculate the 3-month implied cash rate.
A) 1.42%
B) 1.39%
C) 2.01%
D) 4.21%

Quizplus · Accepted Answer

To calculate the 3-month implied cash rate, we need to first calculate the 2-month CAD forward rate using the 1x2 FRA. (1 + 0.0121*60/360)/(1 + 0.0095*31/360) - 1 = 0.01201 or 1.201% Now, we can use the 2-month forward rate and the 2x3 FRA to calculate the 3-month implied cash rate. (1 + 0.0201*31/360)/(1 + 0.01201*61/360) - 1 = 0.0139 or 1.39%. Therefore, the best choice is B.

From the Following CAD Rates: 1M (31-Day) CAD Deposit 0