Economics · Financial Derivatives
Company A needs a $4 million loan for a six-month period, required in three months' time. To hedge against interest rate risk, the company enters into a Forward Rate Agreement (FRA) with a bank. The bank offers a 3-9 FRA at 12% per annum. If the actual loan interest rate on the date the loan is taken turns out to be 10% per annum, what is the settlement action between Company A and the FRA bank?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Company A receives $40,000 from the bank
- 2Company A receives $80,000 from the bank
- 3Company A pays the bank $40,000✓
- 4Company A pays the bank $80,000
Correct answer
Company A pays the bank $40,000
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