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NEW QUESTION: 1
Click on the Exhibit Button to view the Formula Sheet. You are paying 5% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10 million interest rate swap with exactly two years to maturity. 6- month LIBOR for the next payment date is fixed today at 4.95%. How would you hedge the swap using FRAs? How to hedge an IRS with a strip of FRAs?
A. buy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
B. buy a strip of 6x12, 12x18 and 18x24 FRAs
C. sell a strip of 6x12, 12x18 and 18x24 FRAs
D. sell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
Answer: C
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B. Flow Rule
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