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Suppose that the 3 month and 6 month continuously compounded LIBOR rates are 3% and 3.5% respectively. Assume that LIBOR is used as the risk-free discount rate.

a) Consider a company which plans to borrow in the future and fears that short term rates would rise. The company would like to hedge its interest rate risk by using an FRA. Should it purchase or sell the FRA?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92060973

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