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you are paying 5% per annum paid semi-annually and receiving 6-month libor on a usd 10 million interest rate swap with exactly two years to maturity. 6-month libor for the next payment date is fixed today at 4.95%. how would you hedge the swap using fras? how to hedge an irs with a strip of fras?

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sell a strip of 6x12, 12x18 and 18x24 FRAs

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buy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs

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sell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs

Answer

buy a strip of 6x12, 12x10 and 16x24 FRAs

You are paying 5% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10 million interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 4.95%. How would you hedge the swap using FRAs? How to hedge an IRS with a strip of FRAs?

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