Sonal Johnson is a risk manager for a bank. She manages the bank's risks using a combination of swaps and forward rate agreements (FRAs).

Johnson prices a three-year Libor-based interest rate swap with annual resets using the present value factors presented in Exhibit 1.

EXHIBIT 1 Present Value Factors

Maturity (years)	Present Value Factors
1	0.990099
2	0.977876
3	0.965136

Johnson also uses the present value factors in Exhibit 1 to value an interest rate swap that the bank entered into one year ago as the receive-floating party. Selected data for the swap are presented in Exhibit 2. Johnson notes that the current equilibrium two-year fixed swap rate is 1.00%.

EXHIBIT 2 Selected Data on Fixed for Floating Interest Rate Swap

Swap notional amount	$50,000,000
Original swap term	Three years, with annual resets
Fixed swap rate (since initiation)	3.00%

One of the bank's investments is exposed to movements in the Japanese yen, and Johnson desires to hedge the currency exposure. She prices a one-year fixed-for-fixed currency swap involving yen and US dollars, with a quarterly reset. Johnson uses the interest rate data presented in Exhibit 3 to price the currency swap.

EXHIBIT 3 Selected Japanese and US Interest Rate Data

Days to Maturity	Yen Spot Interest Rates	US Dollar Spot Interest Rates
90	0.05%	0.20%
180	0.10%	0.40%
270	0.15%	0.55%
360	0.25%	0.70%

Johnson next reviews an equity swap with an annual reset that the bank entered into six months ago as the receive-fixed, pay-equity party. Selected data regarding the equity swap, which is linked tot an equity index, are presented in Exhibit 4. At the time of initiation, the underlying equity index was trading at 100.00.

EXHIBIT 4 Selected Data on Equity Swap

Swap notional amount	$20,000,000
Original swap term	Five years, with annual resets
Fixed swap rate	2.00%

The equity index is currently trading at 103.00, and relevant US spot rates, along with their associated present value factors, are presented in Exhibit 5.

EXHIBIT 5 Selected US Spot Rates and Present Value Factors

Maturity (years)	Spot Rate	Present Value Factors
0.5	0.40%	0.998004
1.5	1.00%	0.985222
2.5	1.20%	0.970874
3.5	2.00%	0.934579
4.5	2.60%	0.895255

Johnson reviews a 6 X 9 FRA that the bank entered into 90 days ago as the pay-fixed/receive-floating party. Selected data for the FRA are presented in Exhibit 6, and current Libor data are presented in Exhibit 7. Based on her interest rate forecast, Johnson also considers whether the bank should enter into new positions in 1 X 4 and 2 X 5 FRAs.

EXHIBIT 6 6 X 9 FRA Data

FRA term	6 X 9
FRA rate	0.70%
FRA notional amount	US $20,000,000
FRA settlement	Advanced set, advanced settle

EXHIBIT 7 Current Libor

30-day Libor	0.75%
60-day Libor	0.82%
90-day Libor	0.90%
120-day Libor	0.92%
150-day Libor	0.94%
180-day Libor	0.95%
210-day Libor	0.97%
270-day Libor	1.00%

Three months later, the 6 X 9 FRA in Exhibit 6 reaches expiration, at which time the three-month US dollar Libor is 1.10% and the six-month US dollar Libor is 1.20%. Johnson determines that the appropriate discount rate for the FRA settlement is 1.10%.

Based on Exhibit 1, Johnson should price the three-year Libor-based interest rate swap at a fixed rate closest to:

	A.	0.34%.
	B.	1.16%.
	C.	1.19%.

From the bank's perspective, using data from Exhibit 1, the current value of the swap described in Exhibit 2 is closest to:

	A.	-$2,951,963.
	B.	-$1,967,975.
	C.	-$1,943,000.

Based on Exhibit 3, Johnson should determine that the annualized equilbrium fixed swap rate for Japanese yen is closest to:

	A.	0.0624%.
	B.	0.1375%.
	C.	0.2496%.

From the bank's perspective, using data from Exhibits 4 and 5, the fair value of the equity swap is closest to:

	A.	-$1,139,425.
	B.	-$781,323.
	C.	-$181,323.

Based on Exhibit 5, the current value of the equity swap described in Exhibit 4 would be zero if the equity index was currently trading the closest to:

	A.	97.30.
	B.	99.09.
	C.	100.00.

From the bank's perspective, based on Exhibit 6 and 7, the value of the 6 X 9 FRA 90 days after inception is closest to:

	A.	$14,817.
	B.	$19,647.
	C.	$29,635.

Based on Exhibit 7, the fixed rate on a new 2 X 5 FRA is closest to:

	A.	0.61%.
	B.	1.02%.
	C.	1.71%.

Based on Exhibit 6 and the three-month US dollar Libor at expiration, the payment amount that the bank will receive to settle the 6 X 9 FRA is closest to:

	A.	$19,945.
	B.	$24,925.
	C.	$39,781.

Based on Exhibit 7, the no-arbitrage fixed rate on a new 1 X 4 FRA is closest to:

	A.	0.65%.
	B.	0.73%.
	C.	0.98%.