lecture 11 (1)

Question 1

An FRA involves two parties, a buyer and a seller, where

Answer 1

The buyer agrees to pay the seller the increased interest cost on a notional amount if interest rates fall below an agreement rate or

The seller agrees to pay the buyer the increased interest cost if interest rates increase above the agreement rate

Question 2

Payment amount under an FRA is calculated as the absolute value of

Answer 2

(Notional amount * (SR - AR) * days/360)/ 1 + (SR * days/360)

where days denotes the length of FRA period

SR = settlement rate

AR = the agreement rate

Question 3

Euronotes

Answer 3

short term notes underwritten by a group of international investment or commercial banks called a facility. A client borrower makes an agreement with a facility to issue euronotes in its own name for a period of time, generally 3 to 10 years

Question 4

Euro

Question 5

Eurocommercial paper

Answer 5

like domestic commercial paper, is an unsecured short term promissory note issued by a corporation or a bank and placed directly with the investment public through a dealer.

Question 6

international debt crisis

Answer 6

caused by lending the sovereign governments of some less developed countrys