You Borrow Money at Libor with a Floating-Rate Note for One

question 22

Multiple Choice

You borrow money at Libor with a floating-rate note for one year with two semi-annual payments. What position do you need to add to this note to fix the cost of borrowing for the entire year?

• A) Sell a \(6 \times 12\) FRA.
• B) Buy a \(6 \times 12\) FRA.
• C) Buy a one-year zero-coupon bond and short a 1.5-year zero-coupon bond.
• D) Buy a six-month zero-coupon bond and short a one-year zero-coupon bond.

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Definitions:

Differentiation

Differentiation refers to the process or mechanism by which entities (organisms, systems, social groups) become distinct from each other in structure or function.

Religious Institutions

Organizations based on beliefs and practices related to the sacred or divine, often involving rituals, moral guidance, and communal activities.

Moral Guidance

Advice or direction based on principles of right and wrong, often derived from societal norms, religion, or ethical theories.

Bureaucratic

Pertaining to a system or organization marked by fixed rules, hierarchy, and a detailed division of administrative tasks.