Question #65
Reading: Reading 30 Pricing and Valuation of Forward Commitments
PDF File: Reading 30 Pricing and Valuation of Forward Commitments.pdf
Page: 26
Status: Unattempted
Question
The floating-rate payer in a simple interest-rate swap has a position that is equivalent to:
Answer Choices:
A. a series of long forward rate agreements (FRAs)
B. a series of short FRAs
C. issuing a floating-rate bond and a series of long FRAs.
Explanation
The floating-rate payer has a liability/gain when rates increase/decrease above the fixed
contract rate; the short position in an FRA has a liability/gain when rates
increase/decrease above the contract rate.