The Exim Company has entered into a 3 month,$250 notional principal forward rate agreement (FRA)with What-a-Bank.The terms are such that Exim will pay What-a-Bank if LIBOR is above 2%,but What-a-Bank will pay Exim if LIBOR is below 2%.Based on the standard FRA formula,who will pay and how much,if LIBOR is 2.375% in three months?

Question

Quizplus · Accepted Answer

Since LIBOR is above 2% at 2.375%, Exim Co. will pay What-a-Bank. The payment amount is calculated using the FRA formula, which considers the difference between the agreed rate and the actual LIBOR rate, the notional principal, and the duration of the agreement.

The Exim Company Has Entered into a 3 Month,$250 Notional