John Woodstock works at RedGreen Corporation. He s expecting a receipt of $50,000,000 in 2 months time and the deposit will not be required for a period of 6 months from receipt at which time the cash will be required for capital investment. Woodstock notes that LIBOR is currently 6% but Woodstock believes that macro-economic conditions are currently such that this will reduce over the 8 months in question, particularly within the next quarter, to a level he anticipates to be 5.25%. Woodstock sells a 2 x 8 FRA with an interest rate of 5.7%. LIBOR at the date the cash is received is 5.5%. Which of the following best describes that resultant cash flows?
I am indifferent to all the choices that follow.
Guys Here are the choices: A)$50,000 in RedGreen’s favor B) $50,000 against RedGreen C) $48,614.49in RedGreen’s favor D) $48,661.80in RedGreen’s favor Sorry. Joey you got the right answer!
D is the right answer… wat u guys feel.
D