Question 9 Not answered Points out of 2 You currently receive loan payments at a rate of LIBOR plus 3.7%. An F.R.A. is available whereby one party will pay LIBOR and the other will pay 2.83%. LIBOR is currently 3.05%. You want to hedge your interest rate risk. First, figure out how you would do this. After you've put the hedge in place, LIBOR changes to 3.18%. What net fixed interest rate are you now receiving? Go out four decimal places - for example, write 7.36% and .0736. Flag question Answer: x Hint: A forward rate agreement (F.R.A.) is the same thing as a one-period plain vanilla interest rate swap, which we've already studied in this course. You can use an F.R.A. to hedge in pretty much the exact same way that you can use a plain vanilla swap. The correct answer is: 0.0653