Matthew Enters into an FRA with the Local Bank

question 27

Multiple Choice

Matthew enters into an FRA with the local bank.The current one year forward rate is 4%.If the yield on a one year T-Bill in one year is 3.5%,what payment will be made to settle the agreement?

• A) Matthew would pay the bank 0.5%.
• B) Matthew will use the market rate rather than the FRA rate.
• C) The bank would pay Matthew 0.5%.
• D) Matthew would not exercise his option.

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Definitions:

Grimaces

Facial expressions often conveying disapproval, pain, or discomfort.

Screams

High-pitched, loud vocalizations that are typically a response to fear, excitement, or surprise.

Temperament

A person's natural temperament or way of behaving and typical emotional reaction.

Rage

An intense, uncontrollable feeling of anger or frustration, often manifesting in aggressive behavior or emotional outbursts.