Short in an FRA is the seller, who is receiving fixed and paying floating.
we see that floating libor is 5% but fixed rate is 6%, so seller has to pay 5% and receive 6% and is in a net gain.
Harsh23GuptaThe Official Nerdhttps://www.linkedin.com/in/harsh-gupta-7832871b8
The answer is A because only in case of FRA, the LIBOR is not taken of the prior period. It is taken of the day on which settlement is to be carried out. That is unknown so answer is a.
Prasad Aurangabadkar01The Official Nerdhttps://www.linkedin.com/in/prasad-aurangabadkar-34bb2b145/
See the thing is, lets take an example of 3 x 9 Fra. You are standing at point 0. The bet which you enter into is going to last for the first 3 months. And finally the loan is going to start at point 3 on the timeline. The loan period is then going to be between 3 to 9 or 180 days. At point 9, you will have to repay the loan. At this point, the Libor which will be 180 day libor will be the one decided on point 3. That’s why libor which matters here is at point 3. Because you are not repaying loan at point 3, you will repay the money you take at point 9. Hope this helps.
I think option A is incorrect because time value decreases as the option approaches maturity.
Why I told answer should be B because sometimes I trade in options and the thing is that the premium for OTM options contains time value only which slowly decays as it approaches maturity. Options which are ITM contains intrinsic and time value if the option expires ITM the time value portion of premium decays and the intrinsic value of premium is left on maturity.
Harsh23GuptaThe Official Nerdhttps://www.linkedin.com/in/harsh-gupta-7832871b8
Short in an FRA is the seller, who is receiving fixed and paying floating.
we see that floating libor is 5% but fixed rate is 6%, so seller has to pay 5% and receive 6% and is in a net gain.
The answer is A
The answer is A because only in case of FRA, the LIBOR is not taken of the prior period. It is taken of the day on which settlement is to be carried out. That is unknown so answer is a.
By LIBOR I mean any floating rate involved in agreement.
But we are have the provision of early set payable in arrears
See the thing is, lets take an example of 3 x 9 Fra. You are standing at point 0. The bet which you enter into is going to last for the first 3 months. And finally the loan is going to start at point 3 on the timeline. The loan period is then going to be between 3 to 9 or 180 days. At point 9, you will have to repay the loan. At this point, the Libor which will be 180 day libor will be the one decided on point 3. That’s why libor which matters here is at point 3. Because you are not repaying loan at point 3, you will repay the money you take at point 9. Hope this helps.
Is the answer for 105 option B?
It’s A
I think for 105 the marked option c is correct.
Intrinsic value can never exceed the option premium coz option premium is composed of intrinsic value and extrinsic value. Answer to 105 is B.
Yes exactly
I think option A is incorrect because time value decreases as the option approaches maturity.
Why I told answer should be B because sometimes I trade in options and the thing is that the premium for OTM options contains time value only which slowly decays as it approaches maturity. Options which are ITM contains intrinsic and time value if the option expires ITM the time value portion of premium decays and the intrinsic value of premium is left on maturity.
You are correct but I am asking for q106
I know you are asking for 106. I just wanted to verify the answer for 105.
Yeah you are correct