awan company dec13

You should watch the lecture on this! With FRA's you pay whatever the actual rate is at the start of the loan, and then settle up the difference between that and the FRA rate with the bank (we pay them any extra or they pay us if the actual rate is higher).

Hi John, Is this FRA calculated correctly? Our actual rate is 4.79%, payment to bank is Libor rate 4.99% less FRA 4.82? In my book I have different. Settlement on FRA is difference between actual and FRA ( 4.79%-4.82%) Which one is correct?

The examiners answer is wrong. Since these are FRA's specifically offered to Awan, then he should have use the actual rates not Libor (so Libor - 0.2%)

Ok, I'll stick to you lecture rules, it makes sense :) thank you

Please help Are you talking about the investment return or payment or receive from voblaka bank could you pls write the correct solution i m using the examiner solution.

I do not have time to write out the whole answer!!!! Everything the examiner did was correct except that he should have used the difference between the actual rate and the FRA rate (rather than the difference between Libor and the FRA rate).

It means when increasing to 4.99 it will be 4.99-4.82 and while decreasing it will be 4.82-3.19

Correct :-)

hi sir, does it mean that the net effective annual interest rate still is 4.82% as quoted by the bank?

Yes :-)

as suggested , if we use actual rate and the FRA rate as the difference, payment to voblaka bank when interest increase to 4.99 will be (4.79%-4.82%)*$48m*4/12=$4800.if we deduct it from investment return at 4.79% that is $766,400-$4800=$761,600 Effective annual interest rate =$761,600/$48m*12/4=4.76%. is that correct, pls help me with alternative solution if iam wrong

Have you looked at the examiners answer to this question?

yes, the reason why i asked that question is because of the statement you made that "Everything the examiner did was correct except that he should have used the difference between the actual rate and the FRA rate (rather than the difference between Libor and the FRA rate)." pls if possible give a hint arithmetically how it should be. thanks

Sorry - I misread your previous question. What you have written there is correct.

ok thanks

You are welcome :-)

Hi, This question states that Awan co is expecting to receive $48m on 1 feb 2014 which will be invested on 1june 2014. Doesn't this mean that the investment will take place in 4 months' time and not 3 months? So , FRA 4-7 should be chosen? Am I looking at it in the wrong way?

Hi, I guess I interpreted it the wrong way, its 1 nov now and investment will b made on 1 feb- so 3 months time. Apologies!

That's correct! No problem :-)

Hi sir , i am a little confused here One person wrote the payment to bank is "fra of 4.82-4.99 and u said its correct. another person wrote payment to bank is " fra 4.82- actual return of "4.79" and u said that is coorect. can u tell me which rates we compare. As far as i understand FRA is 4.82 and actual rate is 4.79 so it making payment to bank should be "4.82-4.99" as the market is offering more than FRA the kaplan 2019 kit suggests payment to bank "4.99-4.82"*48m**4/12