FRA quotations or prices
FRAs are over-the counter transaction between a bank and a company.
The bank quotes two-way prices for each FRA period for each borrowing (loan) or lending (deposit).
An example of bank quotations for FRA:
3 v 6 5.25 - 7.00
Means forward rate agreement that start in 3 months and last for 3 months at a borrowing rate of 7% and lending rate of 5.25%.
A bank has quoted the following FRA rates:
Assume that now is 1st October 2013.
|2 v 7||5.25 - 6.25|
|3 v 5||6.00 - 7.00|
|4 v 6||5.85 - 6.35|
Determine the FRA interest applicable to the following situations:
1. A company wants to borrow on 1st February 2014 and repay the loan on 1st of April 2014.
2. A company wants to deposit money on 1st December 2013 and expect to withdraw the amount for an investment on 1st of May 2014.
3. A company wants to borrow on 1st January 2014 and repay the loan on 1st of March 2014
4 v 6 at a borrowing rate of 6.35%
2 v 7 at lending rate of 5.25%
3 v 5 at a borrowing rate of 7.00%