Question #51
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: A
Question
The fixed-rate receiver in a plain vanilla interest rate swap has a position equivalent to a series of:
Answer Choices:
A. short interest-puts and long interest-rate calls
B. long interest-rate puts and short interest-rate calls
C. long interest-rate puts
Explanation
The fixed-rate receiver has profits when short rates fall and losses when short rates rise,
equivalent to buying puts and writing calls.