Assume the following terms for an FRA: Reference rate is three-month LIBOR, the contract rate is 5.78%, the notional amount is for $10 million, and the number of days to settlement is 91 days. If the settlement rate is 6.33%, what compensation or payment must make to the buyer by the seller?

Question

Quizplus · Accepted Answer

To calculate the payment, we need to use the formula:

Payment = Notional Amount x (Settlement Rate - Contract Rate) x (Number of Days to Settlement/360)

Payment = $10,000,000 x (0.0633 - 0.0578) x (91/360)
Payment = $10,000,000 x 0.0055 x 0.2528
Payment = $13,684

Therefore, the seller must make a payment of $13,684 to the buyer. Option C is the correct answer.

Assume the Following Terms for an FRA: Reference Rate Is