f.yafai
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FRM FRM Quiz on Topic 5, created by f.yafai on 01/11/2013.

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Topic 5

Question 1 of 2

1

Company A expects a $10 million receipt one month's (30 days) time and will invest these funds for 3 months (91 days) until they are required in the business.
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Which of the following transactions would be MOST appropriate for company A to use to fix interest rate on the future deposit?

Select one of the following:

  • a) Buy 1 v 3 FRA

  • b) Sell 1 v 3 FRA

  • c) a) Buy 1 v 4 FRA

  • b) Sell 1 v 4 FRA

Explanation

Question 2 of 2

1

Company A expects a $10 million receipt one month's (30 days) time and will invest these funds for 3 months (91 days) until they are required in the business.
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Company A hedges its exposure with an FRA contract at 6.2% which is held to maturity. The outturn market rate on settlement of the contract is 7.3%. What is the best estimate of the FRA compensation amount?

Select one of the following:

  • a) $25,500

  • b) $26,900

  • c) $27,300

  • d) $27,800

Explanation

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