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STR Investment Inc. wants to fix the borrowing rate and enters a forward rate agreement...

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Finance

STR Investment Inc. wants to fix the borrowing rate and enters a forward rate agreement (FRA) with HO bank. The information is as below: Expires/settles in 60 days. Notional principal amount is 40million.

Market rate is based on 120-day LIBOR. The forward rate is 4%.

Assume the actual 120-day LIBOR 60 days from now is 3.5%

  1. Calculate the cash settlement payment at expiration and identify which party makes the payment. Furthermore, What is the type of FRA? (10 marks)

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