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Basic Question 8 of 9
Kevin, a corporate treasurer, wants to hedge against an increase in future borrowing costs. He plans to enter into a long 3 x 9 FRA. The current term structure for LIBOR is 30 day - 4.89%; 90 day - 5.10%; 180 day - 5.27%; 270 day - 5.52%; 360 day - 5.65%. What is the rate Kevin would receive on a 3 x 9 FRA?
User Contributed Comments 3
| User | Comment |
|---|---|
| danlan2 | 3x9 FRA means 90 days to 270 days. |
| dblueroom | means based on 180-day LIBOR 90 days from now. |
| quanttrader | here 3 x 9 means fra to be recvd 3 months from now based on 9-3 = 6 month rate. F(0,h,m) = [[(1+L(h+m))x(h+m/360)] / [(1+L(h))x(h/360)]]x 360/m |
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Learning Outcome Statements
describe how interest rate forwards and futures are priced, and calculate and interpret their no-arbitrage value;
CFA® 2025 Level II Curriculum, Volume 5, Module 31.