You Are Paying 1,00% Per Annum Paid Semi-Annually and Receiving

question 198

Multiple Choice

You are paying 1,00% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10,000,000.00 interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 0.95%. 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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