ACI
3I0-012 · Question #246
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…
The correct answer is D. sell a strip of 6x12, 12x18 and 18x24 FRAs. See the full explanation below for the reasoning.
Question
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?
Options
- Abuy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
- Bsell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
- Cbuy a strip of 6x12, 12x18 and 18x24 FRAs
- Dsell a strip of 6x12, 12x18 and 18x24 FRAs
How the community answered
(63 responses)- A14% (9)
- B5% (3)
- C3% (2)
- D78% (49)
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