Inkel Corp. purchased a Forward Rate Agreement (FRA) with AZ Bank for a notional capital of...
Inkel Corp. purchased a Forward Rate Agreement (FRA) with AZ Bank for a notional capital of $10 million at the 2 month forward rate of 5.5%. Two months later, the market interest rate dropped to 5%.
a. Inkel gained on the FRA
b. Inkel incurred losses on the FRA
c. AZ bank should not have entered the FRA with Inkel
d. a and c
e. All of the above
Homework Answers
Solution:
In the given case,Inkel has long position on FRA.Forward rate is 5.5% but market interest rate has dropped to 5%,thus Inkel incurred losses on the FRA.
Therefore,the correct answer is option b.
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