Question

suppose that a party wanted to enter an FRA that expires in 121 days and is...

suppose that a party wanted to enter an FRA that expires in 121 days and is based on 64-day LIBOR. the dealer quotes a rate of 0.056 on the FRA. Assume that at expiration , the 64-day LIBOR is 0.03, and the notional amount is USD10,000,000. what is the payoff of the FRA short position?

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Answer #1

In this case the Short position stands to gain as the referance rate is less than the agreement rate.

Payoff to short position: $45,972.62

Refer to attached image for detailed answer

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