You borrow €5 million at 7.00% for 6 months (183 days) and deposit €5 million for 3 months (91 days) at 6.75%. You wish to hedge the mismatched position, based on the following FRA prices quoted to you:
3 v 6: 7.10%/7.15%
6 v 9: 7.20%/7.25%
When it comes to fixing the FRA, the 3-month rate is 6.85%/6.90%:
What is the overall profit or loss of the book at the end of six months, assuming that your borrowings are always at LIBOR and your deposits at LIBID?
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