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

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

Reveal Solution Next Question

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

Reveal Solution Next Question