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Consider a forward rate agreement (FRA) that expires/settles in 90 days. The agreement is based on the 180-day LIBOR. The long position agrees to borrow $10,000,000 from the short position (i.e. the dealer). The dealer quotes this instrument at 6 percent. Today, the 90-day LIBOR is 5.5 percent. If the 180-day LIBOR in 90 days is quoted at 5 percent, compute the amount of the cash settlement payment made or received by the borrower at expiration. The borrower will: A. receive a payment of $48,543. B. make a payment of $48,780. C. make a payment of $48,543. |