Swaps and FRA

[Arka Bose]

Hey guys, I am having problems with this question:






I can understand why the answer is D, but what i am having trouble to understand is why the Option C is a replication of the swap.

 

[Dr. Jayanthi Sankaran]

Hi @arkabose,

Just to let you know caps and floors are not covered in the Exam. I just flipped through the GARP Handbook and did not see it there. Maybe I am wrong! Would love to go through this question in detail - sounds very interesting. However, don't have the time. Look up Hull and Basu's Options and Other Derivatives book. Maybe you will find the answer.

Thanks!
Jayanthi

 

[Dr. Jayanthi Sankaran]

Hi @arkabose,

Just to let you know that the GARP 2015 Practice Exam only covers questions from the actual exam between 2011 - 2014. So, for exam purposes, in all likelihood, it will not cover material from 2004.

Thanks!
Jayanthi