You have borrowed at 3-month LIBOR+50. LIBOR for the loan will be re-fixed in exactly one month. The market is quoting: 1x3 USD FRA 0.42-45% 1x4 USD FRA 0.54-58% 1x5 USD FRA 0.57-62% To hedge the next LIBOR fixing, you should:
A) Sell a 1x3 FRA at 0.42%
B) Buy a 1x3 FRA at 0.45%
C) Buy a 1x4 FRA at 0.58%
D) Sell a 1x4 FRA at 0.54%

Question

You have borrowed at 3-month LIBOR+50. LIBOR for the loan will be re-fixed in exactly one month. The market is quoting: 1x3 USD FRA            0.42-45% 1x4 USD FRA            0.54-58% 1x5 USD FRA            0.57-62% To hedge the next LIBOR fixing, you should:
A) Sell a 1x3 FRA at 0.42%
B) Buy a 1x3 FRA at 0.45%
C) Buy a 1x4 FRA at 0.58%
D) Sell a 1x4 FRA at 0.54%

Quizplus · Accepted Answer

The Answer of You have borrowed at 3-month LIBOR+50. LIBOR for the loan will be re-fixed in exactly one month. The market is quoting: 1x3 USD FRA            0.42-45% 1x4 USD FRA            0.54-58% 1x5 USD FRA            0.57-62% To hedge the next LIBOR fixing, you should:
A) Sell a 1x3 FRA at 0.42%
B) Buy a 1x3 FRA at 0.45%
C) Buy a 1x4 FRA at 0.58%
D) Sell a 1x4 FRA at 0.54%

You Have Borrowed at 3-Month LIBOR+50