Question
Indicate which of the following statements is true and which are false regarding these interest rate derivative contracts: a) A firm with floating rate debt
Indicate which of the following statements is true and which are false regarding these interest rate derivative contracts:
a) A firm with floating rate debt of term N could use an interest rate cap contract with fixed rate to protect itself against increases in interest rates over the term of the debt
b) A combination of long an interest rate cap contract and short an interest rate floor contract with the same notional principal L , fixed rate , term N and payment frequency m is equivalent to a pay fixed / receive floating interest rate swap
c) A combination of long a payer swaption and short a receiver swaption is equivalent to a combination of long a swap to pay fixed / receive floating rate for T+N years and short a swap to pay fixed / receive floating for N years
d) A payer swaption contract which has exercise date T over a swap contract with term N years and with fixed swap rate SX is equivalent to an option with exercise date T to exchange a fixed rate bond with term N for a floating rate bond with term N
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