For a Floating Rate Borrower Wishing to Hedge an Exposure

question 80

True/False

For a floating rate borrower wishing to hedge an exposure to higher than expected spot rates, interest rate swaps lock in varying forward rates in the same way as a strip of FRAs or a strip of BAB futures.

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Definitions:

Non-substitutability

The quality of being irreplaceable or not easily replaced due to unique attributes or circumstances.

Strike

A work stoppage caused by the mass refusal of employees to work, usually in protest against working conditions, pay or benefits.

Critical Time

A crucial or decisive point in time where the outcome of a process or event is determined.

Referent Power

A form of power that stems from being well-liked, admired, or respected, making others more likely to comply due to liking or identifying with the person in power.