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FRA

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › FRA

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • January 15, 2018 at 10:29 pm #430307
    Jamie
    Member
    • Topics: 5
    • Replies: 19
    • ☆

    Hi John,
    Libor 4%,yield on commercial paper – Libor +0.6%.
    FRA fixed deposit rate is 3.45% 5v9 If Libor fell by 0.5%

    Answer
    Expected receipt: 7.1mx4.1%x4/12=97033
    Fra : 7.1m(3.5%-3.45%)x4/12×1/1+(3.5×4/12)=1169.65
    So the effective rate is 4.05% =3.45%+.6%

    I do not understand the FRA calculation, in your lecture it should be (3.5%+0.6%)-3.45%x4/12 which get Effective rate of 3.45% equal to FRA ?

    Thanks
    Jamie

    January 16, 2018 at 5:51 am #430394
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    In future, you must ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other 🙂

    The answer you have copied assumes that the FRA is given against LIBOR, which means that LIBOR is effectively being fixed at 3.45%, but then they will actually receive 0.6% above the fixed LIBOR which gives 3.45% + 0.6% = 4.05%.

    This is not normally the case unless this is how the bank quoted it. Normally the quote given by the bank will be for the actual interest rate and therefore it would be fixed at the 3.45%. It depends on the exact wording of the agreement in the question.

    January 16, 2018 at 7:13 am #430411
    Jamie
    Member
    • Topics: 5
    • Replies: 19
    • ☆

    Thank you John. Sorry i will ask in thr ask tutor next time.

    January 16, 2018 at 5:00 pm #430575
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘FRA’ is closed to new replies.

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