You Have Entered into a Swap Where You Receive the Fixed

question 22

Multiple Choice

You have entered into a swap where you receive the fixed rate and pay the floating rate. What is the best way to hedge interest-rate risk in this swap from among the following choices?

• A) Add a long position in fixed rate bonds.
• B) Add a short position in interest-rate futures.
• C) Add a basis (i.e., floating-floating) swap.
• D) Add a short position in FRAs.

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Definitions:

Thousands Passengers

Thousands Passengers refer to a unit of measurement, often used in transportation statistics, to quantify the number of passengers in multiples of thousands.

Standard Form

An equation format, especially for linear equations, where Ax + By = C, where A, B, and C are integers, and A should be non-negative.

Imaginary Unit

The unit of an imaginary number, usually denoted as 'i', and defined as the square root of -1.

Standard Form

A way to write numbers using the digits 0-9, with each digit having a place value. In algebra, a standard form often refers to a way of writing equations.