Your company will receive USD10,000,000 in 3 months’ time and will keep the funds for a 3-month

Your company will receive USD10,000,000 in 3 months’ time and will keep the funds for a 3-month

Your company will receive USD10,000,000 in 3 months’ time and will keep the funds for a 3-month

period to cover a payable 6 months from today. Your analysts think that interest rates may fall from their current level at 6.1% and you want to protect the return you will get until you need the funds. BNP-Paribas, a French bank, offers a FRA with an interest rate of 6% to cover the extra funds for the 3-month period 3 months from today. Your company decides to take the FRA offer from BNP-Paribas.

What will happen to both parties if interest rates 3 months from now are at the following rates?

  1. 6.1%
  2. 5.2%
  3. 6.0%

Show all calculations leading to your conclusions on any amounts that might need to be exchanged.