ACI
3I0-012 · Question #343
You have borrowed at 3-month LIBOR+50. LIBOR for the loan will be re-fixed in exactly one month. The market is quoting: 1x3 USD FRA 0.42-45% 1x4 USD FRA 0.54-58% 1x5 USD FRA 0.57-62% To hedge the…
The correct answer is C. Buy a 1x4 FRA at 0.58%. See the full explanation below for the reasoning.
Question
You have borrowed at 3-month LIBOR+50. LIBOR for the loan will be re-fixed in exactly one month. The market is quoting:
1x3 USD FRA 0.42-45% 1x4 USD FRA 0.54-58% 1x5 USD FRA 0.57-62% To hedge the next LIBOR fixing, you should:
Options
- ASell a 1x3 FRA at 0.42%
- BBuy a 1x3 FRA at 0.45%
- CBuy a 1x4 FRA at 0.58%
- DSell a 1x4 FRA at 0.54%
How the community answered
(49 responses)- A8% (4)
- B16% (8)
- C71% (35)
- D4% (2)
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