The treasurer of Company A expects to receive a cash inflow of $15000000 in 90

The treasurer of Company A expects to receive a cash inflow of $15000000 in 90days. The treasurer expects short-term interest rates to fall during the
next 90 days. Inorder to hedge against this risk the treasurer decides to use an FRA that expires in 90days and is based on 90-day LIBOR. The FRA is quoted
at 5 percent. At expiration LIBOR is 4.5 percent. Assume that the notional principal on the contract is $l5OOOOOO.

A.Indicate whether the treasurer should take a long or short position to hedge interestrate risk.

B.Using the appropriate terminology identify the type of FRA used here.

C.Calculate the gain or loss to Company A as a consequence of entering the FRA.