The manager of a savings and loan association 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 portfolio of fixed rate residential mortgage loans into a floating payment Answer the below questions (a) What is the risk wit...

The manager of a savings and loan association is considering the use of a swap as part

Question:

The manager of a savings and loan association 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 of fixed-rate residential mortgage loans into a floating payment.
Answer the below questions.
(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? Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...