A company will receive $100 million in six months to be invested for a six-month period. The Treasurer is afraid rates will fall, in which case the investment return will be lower. The company needs to take a position that will offset this loss by generating a gain when rates fall. Because a short FRA gains when rates fall, the Treasurer needs to sell a 6??12 FRA on $100 million at the rate of, say, F = 5%. This locks in an investment rate of 5% starting in six months.
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