XY Ltd. is planning to expand its operations in view of growing demand for its products. For this purpose, it is considering to borrow an amount of…

Final settlement amount shall be computed by using formula: = (N)(RR - FR)(dtm/DY) / [1 + RR(dtm/DY)] Where, N = the notional principal amount of the agreement; RR = Actual Reference Rate for the maturity specified by the contract prevailing on the contract settlement date; FR = Agreed-upon Forward Rate; and dtm = maturity period in days or months of the forward rate agreement DY = Total number of days or month in a year as per convention Accordingly, i. If Banker pays to XY Ltd. an amount of 9,78,952.52 then actual interest shall be computed as follows: 9,78,952.52 = (100crore)(RR -0.082)(3/12) / [1 + RR(3/12)] RR = 0.086 Thus, the actual interest rate happens to be 8.60% on the settlement date. ii. If XY Ltd. pays to Banker an amount of 9,80,872.98 then actual interest shall be computed as follows: 9,80,872.98 = (100crore)(RR -0.082)(3/12) / [1 + RR(3/12)] RR = 0.078 Thus, the actual interest rate happens to be 7.80% on the settlement date.