Question
1.An investor wants to enter into a 10-year receive fixed interest rate swap to hedge a fixed income exposure. The market rate is 1.75, but
1.An investor wants to enter into a 10-year receive fixed interest rate swap to hedge a fixed income exposure. The market rate is 1.75, but the investor wants a 3.25 fixed rate. Which of the following statements is TRUE?
This hedge is effective for a bond fund manager looking to reduce duration exposure.
The investor will receive an upfront payment from the counterparty since this is an off market rate.
This transaction will be nullified on Dec. 31, 2021 because interest rate swaps will stop trading after SOFR replaces LIBOR.
This investor is concerned with the risk of interest rates falling.
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