ABC International Has Borrowed $4,000,000 at LIBOR Plus a Lending

question 94

Multiple Choice

ABC International has borrowed $4,000,000 at LIBOR plus a lending margin of .65 percent per annum on a three-month rollover basis from Barclays in London.Three month LIBOR is currently 5.5 percent,but ABC is worried about an increase in three-month LIBOR 3 months from now.What could they do to hedge?

• A)Buy a 3 × 6 FRA in the amount of $4 million.
• B)Sell a 3 × 6 FRA in the amount of $4 million.
• C)Buy a 3 × 3 FRA in the amount of $4 million.
• D)Buy a 3 × 9 FRA in the amount of $4 million.

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Definitions:

Gullible

A tendency to be easily deceived or tricked, often due to a lack of skepticism or the desire to believe what one is told.

Preconscious

Mental activities and information not currently in conscious awareness but that can be easily recalled or accessed.

Collective Unconscious

A concept in psychology introduced by Carl Jung, referring to the part of the unconscious mind which is derived from ancestral memory and experience and is common to all humankind.

Material

The substance or substances out of which a thing is or can be made.