You have the following information on LIBOR rates: One-year spot rate is 4% per year. Forward rate in the second year is 6% per year. What must be the annualized two-year spot LIBOR rate?

a.

4.99%

b.

5.05%

c.

4.50%

d.

3.99%

Company X, which is a chemical manufacturer, uses crude oil and buys it in the spot market on a monthly schedule. A crude oil swap is quoted by the dealer at $25. Which of the following statements is correct?

	a.	In a month when the spot price of oil is above $25, the company will pay the difference to the counterparty
	b.	The swap is traded on the exchange only
	c.	In a month when the spot price is below $25, the company will pay the difference to the counterparty
	d.	The company should sell the swap to hedge