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QUESTION: 256 Topic: 3, Volume C

Today is Monday, 8th December. You sell a 9x12 USD FRA for value Thursday, 10th September next year. On what date is the settlement amount due to be paid or received (assuming that there are no holidays)?

8th September next year
10th September next year
8thDecembernextyear
December next year

Answer(s): B

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QUESTION: 257 Topic: 3, Volume C

An FRA is:

A cash instrument
An exchange traded derivative
An interest rate derivative
A balance sheet instrument

Answer(s): C

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QUESTION: 258 Topic: 3, Volume C

You are paying 1,00% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10,000,000.00 interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 0.95%. How would you hedge the swap using FRAs?

How to hedge an IRS with a strip of FRAs?

buy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
sell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
buy a strip of 6x12, 12x18 and 18x24 FRAs
sell a strip of 6x12, 12x18 and 18x24 FRAs

Answer(s): D

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QUESTION: 259 Topic: 3, Volume C

How would you delta hedge a deeply “in-the-money” short put option?

Go short of the underlying commodity equal to 50% of the size of the option contract
Go long of the underlying commodity equal to 50% of the size of the option contract
Go long of the underlying commodity equal to more than 50% of the full size of the option contract
Go short of the underlying commodity equal to more than 5O% of the full size of the option contract

Answer(s): D

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