You are the fixed-rate payer in a plain vanilla interest rate swap. If your counterparty defaults, your exposure at default is:
A) greater, the higher the market swap rate and the shorter the term
B) lower, the lower the market swap rate and the shorter the term
C) lower, the lower the market swap rate and the longer the term
D) greater, the higher the market swap rate and the longer the term

Question

Quizplus · Accepted Answer

If the market swap rate is higher than the fixed rate you are paying, the swap has positive value to you, increasing your exposure. A longer term increases the potential for rate changes, further increasing exposure.

You Are the Fixed-Rate Payer in a Plain Vanilla Interest