Financial Risk Manager Part 1

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Explanation:

Correct answer: D

A bank that plans to lend at LIBOR in the future is exposed to falling rates on the lending side, so it hedges by receiving the fixed rate in an FRA.

A is false: FRAs are OTC, not exchange-traded.
B is false: FRAs are cash settled.
C is false: A future borrower hedges by paying fixed and receiving floating in the FRA, not receiving fixed.
D is true: The lender hedges by receiving fixed in the FRA.

Explanation:

Correct answer: D

A bank that plans to lend at LIBOR in the future is exposed to falling rates on the lending side, so it hedges by receiving the fixed rate in an FRA.

A is false: FRAs are OTC, not exchange-traded.
B is false: FRAs are cash settled.
C is false: A future borrower hedges by paying fixed and receiving floating in the FRA, not receiving fixed.
D is true: The lender hedges by receiving fixed in the FRA.

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MManit

Last updated: April 18, 2026 at 11:32

It is an exchange-traded instrument

27.8%

It can be cash or physically settled

33.3%

A borrower who intends to borrow cash at LIBOR in the future will hedge by receiving the fixed interest rate, R(k), in an FRA

11.1%

A bank that intends to lend cash at LIBOR in the future will hedge by receiving the fixed interest rate, R(k), in an FRA

27.8%