ABC International has borrowed $4,000,000 at LIBOR plus a lending margin of .65 percent per annum on a three-month rollover basis from Barclays in London.Three month LIBOR is currently 5.5 percent,but ABC is worried about an increase in three-month LIBOR 3 months from now.What could they do to hedge?
A) Buy a 3*6 FRA in the amount of $4million.
B) Sell a 3*6 FRA in the amount of $4million.
C) Buy a 3*3 FRA in the amount of $4million.
D) Buy a 3*9 FRA in the amount of $4million.
Correct Answer:
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