guys practice exam volume 2 p184 q56 I think strategy 1 is wrong. It should use 6 month spot rate, 6*12FRA, 12*18FRA, and 18*24FRA instead of 4 FRAs. would you plz check it?
any one did it?
The question is to neutralize a payer swap position. (interest rate swap) first, a swap is equivalent to a series of off market FRAs, because swap payer supposed to pay fixed and receive float, short series of FRAs can offset the position. second, the fixed payer could gain identical exposure by issuing a fixed coupon bond and investing the proceeds in a floating rate bond with same maturity and payment dates. therefore, buy fixed bond and sell float bond can offset the position. hope i will be helpful
I agree with oversun too. Can anyone confirm this?
what gmac said