Northern Rock Bank (the seller) entered into a “three against six” FRA with Southern Cross

Northern Rock Bank (the seller) entered into a “three against six” FRA with Southern Cross Bank (the buyer).

Assume that:
Notional Amount = $4,000,000
Settlement Rate (SR) (i.e., three-month market LIBOR) = 5%
Agreement Rage (AR) = 6%
Actual number of days in the three-month agreement period = 91

rev: 05_17_2018_QC_CS-127292

Multiple Choice

Northern Rock Bank will pay Southern Cross Bank a cash settlement at the end of the 91-day FRA period.

Northern Rock Bank will pay Southern Cross Bank a cash settlement at the beginning of the 91-day FRA period.

Southern Cross Bank will pay Northern Rock Bank a cash settlement at the beginning of the 91-day FRA period.

Southern Cross Bank will pay Northern Rock Bank a cash settlement at the end of the 91-day FRA period.

 

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