Question #49
Reading: Reading 30 Pricing and Valuation of Forward Commitments
PDF File: Reading 30 Pricing and Valuation of Forward Commitments.pdf
Page: 20
Status: Unattempted
Correct Answer: B
Question
Which of the following is equivalent to a plain vanilla receive-fixed interest rate swap?
Answer Choices:
A. A short position in a bond coupled with the issuance of a floating rate note
B. A short position in a bond coupled with a long position in a floating rate note
C. A long position in a bond coupled with the issuance of a floating rate note
Explanation
A long position in a fixed rate bond receives fixed coupons. The short floating rate note
requires floating-rate payments. Together, these are the same cash flow as a receive-fixed
swap.