1. Which of the following trades would be least susceptible to counterparty risk?
A Buying a credit default swap
B Taking a short position in an FRA
C Taking a short position in a Eurodollar contract
D Taking a long position in an OTC-traded interest rate cap
2. In 30 days, a corporation needs to borrow $50 million for 60 days and wants to hedge against a possible interest rate increase by entering into a FRA today. The company gets a quote of 4.8% for 60-day LIBOR on a 30-day FRA contract with a notional principal of $50 million. The company proceeds with entering into the FRA, and 30 days when the contract expires, 30-day LIBOR is 4.5% and 60-day LIBOR is 5%.
At settlement, the company:
A pays $16,529.
B collects $16,529.
C pays $24,814.
D collects $24,814.