Settlement on a pay-fixed FRA
You buy (pay-fixed, receive-floating) a forward rate agreement on a $10,000,000 notional at a fixed rate of 4.00%. The FRA covers a 6-month (0.5-year) period. At fixing, the reference rate sets at 5.20%. What is your settlement cash flow (undiscounted, on the standard $ = notional × (float − fixed) × day-count basis)? Give dollars; a payment to you is positive.
Show hints (2)+
- Pay-fixed/receive-floating pays you when float > fixed: 5.20% − 4.00% = 1.20%.
- Scale by notional AND the 0.5-year period: 10,000,000 × 0.012 × 0.5.
Answer
Reveal answer →Final answer
60000
Want the full step-by-step worked solution? It's part of Premium — along with a worked solution for every question in the bank.