Suppose that KF Exports enters into an FRA with Interfirst Bank with a notional principal of $40 million and the following terms: In six months, if LIBOR is above 6% then KF will pay Interfirst according to the standard FRA formula; on the other hand, if LIBOR is less than 6% then Interfirst will pay KF. If LIBOR is 5.5% in six months, then who pays who and how much do they pay? Round your answer to the nearest dollar.
KF OR Interfirst will pay KF OR Interfirst $______________
What if LIBOR is 6.5%? Round your answer to the nearest dollar.
KF OR Interfirst will pay KF OR Interfirst $_________