Today is the fixing date for a 6x9 FRA that you sold at 2.55%. BBA LIBOR fixes at 2.7175%. Which of the following is true?
A) You will pay a net settlement amount
B) You will receive a net settlement amount
C) There will be an exchange of gross interest payments in 2 business days
D) There will be an exchange of gross interest payments in 3 months

Question

Quizplus · Accepted Answer

The FRA was sold at 2.55% and the prevailing LIBOR rate at the fixing date is 2.7175%, meaning that the LIBOR rate is higher than the fixed rate agreed upon in the FRA. This implies that the buyer of the FRA would be better off receiving the fixed rate from the seller rather than the floating rate prevailing in the market. Therefore, the seller of the FRA (in this case, "you") would have to compensate the buyer by paying a net settlement amount to reflect the difference between the fixed rate and the prevailing LIBOR rate.

Today Is the Fixing Date for a 6x9 FRA That