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A firm has most of its liabilities in the form of floating-rate notes with a maturity of two years and quarterly reset. The firm is concerned with interest rate movements over the next eight quarters but is not concerned with potential movements after that. Which of the following strategies will allow the firm to hedge the expected change in interest rates? A. Enter into a 2-year, quarterly pay-floating, receive-fixed swap. B. Enter into a 2-year, quarterly pay-fixed, receive-floating swap. C. Buy a swaption that allows the firm to be the fixed-rate payer upon exercise. In other words, go long a payer’s swaption with a 2-year maturity. |