A firm needs to borrow 20 million in 30 days at 90-day, Ask an Expert

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A firm needs to borrow $20 million in 30 days at 90-day LIBOR+1%. The loan will be paid back with principal and interest 90 days later. The firm is concerned about interest rate risk over this 30-day period, and purchases an FRA to protect against an increase in LIBOR. The rate on 30-day FRAs based on 90-day LIBOR is 5%. Interest on the loan and FRA is based on 90/360. Suppose that 30 days later LIBOR is 6%. What is the payoff of the FRA?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92394370

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