You Entered in to a 3 × 6 Forward Rate

question 53

Multiple Choice

You entered in to a 3 × 6 forward rate agreement that obliged you to borrow $10,000,000 at 3%. Suppose at the maturity of the FRA, the correct interest rate is 3½%. Clearly you are better off since you have the ability to borrow $10,000,000 for 3 months at 3% instead of 3½%. What is the payoff at the maturity of the FRA?

• A)Net payment of $12,391.57 to you
• B)Net payment of $12,500 to you
• C)Net payment of $50,000 to you
• D)Net payment of $48,309.18 to you

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Definitions:

Machine-Hours

A measure of production output or used capacity based on the number of hours machines are operated.

Spending Variance

The difference between the actual amount spent and the budgeted amount for a particular period, used in budget control and analysis.

Patient-Visits

The number of times patients visit a healthcare provider or facility for treatment or consultation.

Static Budget

A budget that does not change or adjust in response to variations in business activity levels.