The manager of a savings and loan associa- tion is considering the use of a swap as
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The manager of a savings and loan associa- tion is considering the use of a swap as part of its asset/liability strategy. The swap would be used to convert the payments of its port- folio of fixed-rate residential mortgage loans into a floating payment.
a. What is the risk with using a plain vanilla or generic interest-rate swap?
b. Why might a manager consider using an interest-rate swap in which the notional principal amount declines over time?
c. Why might a manager consider buying a swaption?
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