1.A long positon in a FRA 2*5 is equivalent to the following positions in th
e spot market:
answer: borrowing in 5 months to finance a 2
-month investment

2.An interest rate cap runs for 12 months basd on 3-month Libor with a strik
e price of 4%. Which of the following is generally ture?
answer: the cap consists of 3 caplet options with maturies of 3 months, the
first one starting today based on 3-month Libor set in advance and paid in a
rrears.

3.you are looking for protection against adverse interest rate changes in 5
years. Using Black's model for options on futures to price a European swapti
on which the option holder the right to cancel a 7-year swap after 5 years,
which of the following would you use in the model.
answer: the 2-year forward par swap rate starting in 5 years time