Reading 54: pricing and valuation of interest rates and other swaps

Question 1

Which of the following is most similar to the floating-rate receiver position in a fixed-for-floating interest-rate swap?
Buying a fixed-rate bond and a floating-rate note.
Buying a floating-rate note and issuing a fixed-rate bond.
Issuing a floating-rate note and buying a fixed-rate bond.

Answer 1

The floating-rate receiver (fixed-rate payer) in a fixed-for-floating interest-rate swap has a position similar to issuing a fixed-coupon bond and buying a floating-rate note. (LOS 54.a)

Question 2

The price of a fixed-for-floating interest-rate swap:
is specified in the swap contract.
is paid at initiation by the floating-rate receiver.
may increase or decrease during the life of the swap contract.

Answer 2

The price of a fixed-for-floating interest-rate swap is defined as the fixed rate specified in the swap contract. Typically a swap will be priced such that it has a value of zero at initiation and neither party pays the other to enter the swap. (LOS 54.b)