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The treasurer of XYZ Corp. knows that the company will need to borrow $100 million...

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Finance

  1. The treasurer of XYZ Corp. knows that the company will need to borrow $100 million in one year for a six-month period. LIBOR rates today are at 4% but the companys treasurer expects LIBOR rates to go up to 6% in 1 year. If treasurers expectations turn out to be correct the company will be forced to borrow at a higher rate unless some sort of hedge is created to secure the cost of borrowing. In this situation the XYZs spot market exposure is ____ and the treasurer should pay ____and receive ___ under the FRA agreement in order to hedge its spot market exposure.
  1. Short; Pay LIBOR; Receive Fixed
  2. Short; Pay Fixed; Receive LIBOR
  3. Long; Pay LIBOR; Receive Fixed
  4. Long; Pay Fixed; Receive LIBOR
  5. Neutral; Pay Fixed; Receive LIBOR

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