Forward Rate Agreement

Sir, there is a question called Lagrag Co in BPP Kit.

[Question]
Lagrag Co is a heavily indebted company which is keen to protect the interest payments on
$10 million of borrowings which will be required in 3 months for a period of 4 months. The
company has discovered that the following forward rate agreements are currently available
to it:

(3 v 4) 7.45 – 7.34
(3 v 7) 7.53 – 7.43
(4 v 7) 7.58 – 7.45

Identify the appropriate forward rate agreement and show what the cash flows arising will be if the interest rate payable by Lagrag Co in 3 months is:
i) 7.76%

[My Answer]
Since we have locked the FRA to (3v7) which I completely understood (thanks to your lecture :)) but the current interest rate is 7.76% and we will pay interest on this rate.

However, the bank will return the extra interest that we paid on 7.76% because we had locked the FRA rate at 7.53%. [Is it correct?] So, the difference between 7.76% & 7.53% will be compensation received (I don’t know the correct term so I used compensation received – I hope it is correct & if not please do correct me)

Secondly, can you please explain me how do I choose the correct interest rate of FRA since we’ve been given two interest rate 7.53 – 7.43. And I can’t decide how do we get the correct interest rate.

[I guess the higher interest rate of 7.53% is for borrowing & lesser interest rate of 7.43 is for depositing]