Find the Rate on a Pure Discount Loan Hedged with a Long

question 6

Multiple Choice

Find the rate on a pure discount loan hedged with a long FRA if the loan is for $10 million and matures in 30 days,the FRA is 30-day LIBOR,the fixed rate on the FRA is 4 percent,and LIBOR at the time the loan is taken out is 5 percent.

• A)4.87 percent
• B)0.25 percent
• C)5.18 percent
• D)3.10 percent
• E)2.04 percent

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The economic principle that a country or entity should produce goods and services for which it has a lower opportunity cost than its trading partners.

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