You Are Paying 5% Per Annum Paid Semi-Annually and Receiving

question 161

Multiple Choice

You are paying 5% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10 million interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 4.95%. How would you hedge the swap using FRAs? How to hedge an IRS with a strip of FRAs?

• A) buy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
• B) sell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
• C) buy a strip of 6x12, 12x18 and 18x24 FRAs
• D) sell a strip of 6x12, 12x18 and 18x24 FRAs

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Definitions:

Evidence-Based

Pertaining to an approach that emphasizes the practical application of the outcomes of rigorous research as the basis for decision-making or practice.

Adolescent Substance Abuse

The use of drugs, alcohol, or other substances by individuals in their teenage years, often leading to physical, mental, or social problems.

Schizophrenia

A chronic brain disorder characterized by distorted thinking, perceptions, emotions, language, sense of self, and behavior.

Relapse Rates

The proportion of individuals who return to a previous state of illness or problematic behavior after a period of improvement or recovery.