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1)what are the meaning of leveraged swap and leveraged FRA?
2008 dec Q5b
leveraged swap and fra can be taken to avoid upfront cost of Interest rate option.For eg, taking multiple of the variable leg of a swap where a higher than market fixed rate is swapped for n multiple of variable rate.2)what does this paragraph mean? can u please explain?
Usually, a swap or an FRA is done on the actual amount of the loan in question.
All that leveraged means is that instead of doing it on the actual amount, then we do it on a greater amount.
(I really would not worry too much about this question – it was set by the previous examiner and the reason that he is no longer the examiner is because of questions like this. The new examiner took over in 2010 and it is better to concentrate on his questions 🙂 )
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