Forward Rate Agreement (FRA) Valuation
A UK football club enters into a receive-floating 6x9 FRA at a rate of 0.85% for a notional amount at EUR 35,000,000. After three months pass, the club decides to close the transaction with an FRA at 0.75%. The current six-month EUR market reference rate (MRR) is 1%. The value of the original receive-floating 6x9 after three months will be closest to:
That's right!
Since both FRA rates are given, use the equation to find the present value of the difference between the rates.
$$\displaystyle \frac{[(0.0075- 0.0085) \times \frac{90}{360}]}{[1+(0.01 \times \frac{180}{360})]} = -0.00024876$$
So the value of the original FRA is
$$\displaystyle 35{,}000{,}000 \times -0.00024876= -8{,}706$$.
No.
The FRA calculation uses the difference in FRA rates.
No.
The difference between the initial total time period and the valuation date isn't six months.
EUR -17,413.
EUR -8,706.
EUR 51,980.
