BM & Co. is considering to borrow an amount of 80 crore for a period of 3 months in the coming 6 months time from now. The current rate 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 = Reference Rate for the maturity specified by the contract prevailing on the contract settlement date; FR = Agreed-upon Forward Rate; and Dtm= maturity of the forward rate, specified in days (FRA Days) DY = Day count basis applicable to money market transactions which could be 360 or 365 days. Accordingly, If actual rate of interest after 6 months happens to be 7.60% = (80crore)(0.076-0.073)(3/12) / [1 + 0.076(3/12)] = (80crore)(0.00075) / 1.019 = 0.0589 crore or - 5,88,812.56 or - 5,88,812.5613 Thus, banker will pay BM & Co. a sum of 0.0589 crore or - 5,88,812.56 or - 5,88,812.5613. If actual rate of interest after 6 months happens to be 6.80% = (80crore)(0.068-0.073)(3/12) / [1 + 0.068(3/12)] = (80crore)(-0.00125) / 1.017 = -0.0932 crore or -9,83,284.17 or -9,83,284.1691 Thus BM & Co. will pay banker a sum of 0.0932 crore or - 9,83,284.17 or - 9,83,284.1691.