1 Buyers Sellers 2

200 Open
Until then
1200 Closers 1400 Closers
1400 Closing 1200 Closing
On the Day
600 New 800 Entering New

Assumption No other Party is in the transcation

Until Yesterday Open position is 1400
Today's open opsition 800
Today the open position decreased by 600

b
1 year 6.10% 1.062899
2 Year 6.20% 1.132016
3 year 6.40% 1.211671

Amount 1000
1
Swap rate 6.0000% CF -2.898914
PV -2.727366
-15.722534559

Goal Seek

Continuous rate r Annual Rate exponen(r)-1

Flat Curve - so all maturties same r
1 2
Not* (Swaprate- Not* (Swaprate-
CF CellK15) CellK15)
Discount Factor exponen® exponen®^2

Equate it to zero to get swap rate

 Forward Cont Compu 3 We want to enter FRA as we are scared IR will go Down

1.065027 6.30% cc Annual

1.070365 6.80% Forward rate two year hence 6.80% 7.04%
6.80% 7.04%
Enter an FRA to convert floating to fixed
2 3 The rate we get is 5.23% annuual compounding in the FRA
-5.026839 -10.36531 Effective recepit at 36 months =5.23%+1% (from the asset)
-4.440608 -8.55456

Forward Cont Compu

6.10% 1.062899
6.20% 1.132016 1.065027 6.30%
6.40% 1.211671 1.070365 6.80%
 4S 88 5
F (3 month) 91
r (cc) 6%

Implied F 89.32995

Sell the forward

Borrow 88 for 3 months and buy at spot

After 3 months deliver as per contract

Pay back the amount borrowed with interest
Riskless gain 1.67005

Forward Cont Compu 3 We want to enter FRA as we are scared IR will go Down

cc
Forward rate two year hence 6.80%
 Risk Free Rate for all Maturities CC 8.00%

Present Value of 1 Dollar (2 months) 0.986755

PV of 1 Dollar 5 months 0.967216

Forward rate at agreement 50.00682

After 3 months
PV of 1 dollar @ 5 months (2 months from now) 0.986755

Price of forward if entered now 47.96298

Value of contract for short position -2.003378

e scared IR will go Down

Annual
7.04%