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92
A company enters into an interest rate swap where it is paying fixed and receiving LIBOR. When interest rates increase, which of the following is true?
A.The value of the swap to the company increases
B.The value of the swap to the company decreases
C.The value of the swap can either increase or decrease
D.The value of the swap does not change providing the swap rate remains the same
A.The value of the swap to the company increases
B.The value of the swap to the company decreases
C.The value of the swap can either increase or decrease
D.The value of the swap does not change providing the swap rate remains the same
Answer: A
It is receiving the floating rate. When interest rates increase the floating rate can be expected to be higher and so the swap becomes more valuable. The answer is therefore A.
It is receiving the floating rate. When interest rates increase the floating rate can be expected to be higher and so the swap becomes more valuable. The answer is therefore A.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015