Suppose a corporation desires to borrow financial capital for six months, with two three-month installments. The firm is concerned that interest rates may rise over this period of time. To eliminate interest rate exposure the firm could acquire a
A)3* 6 Forward Rate Agreement
B)3 month "floating-for-fixed" Swap
C)3 month Bond-Index Linked Swap
D)3 month Warrant
E)All of the above

Question

Quizplus · Accepted Answer

A 3*6 Forward Rate Agreement (FRA) allows the firm to lock in an interest rate for borrowing starting in three months and lasting for six months, thus hedging against the risk of rising interest rates.

Suppose a Corporation Desires to Borrow Financial Capital for Six