1 which of the following trades would be least susceptible, Ask an Expert

Finance

1. Which of the following trades would be least susceptible to counterparty risk?

A Buying a credit default swap

B Taking a short position in an FRA

C Taking a short position in a Eurodollar contract

D Taking a long position in an OTC-traded interest rate cap

2. In 30 days, a corporation needs to borrow $50 million for 60 days and wants to hedge against a possible interest rate increase by entering into a FRA today. The company gets a quote of 4.8% for 60-day LIBOR on a 30-day FRA contract with a notional principal of $50 million. The company proceeds with entering into the FRA, and 30 days when the contract expires, 30-day LIBOR is 4.5% and 60-day LIBOR is 5%.

At settlement, the company:

A pays $16,529.

B collects $16,529.

C pays $24,814.

D collects $24,814.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92428214

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