You have the view that rates will be rising over time.What is thebest kind of swap to exploit this view from among the following alternatives?
A)Pay fixed,receive floating.
B)Pay floating,receive fixed.
C)A maturity-mismatch basis swap in which you pay floating indexed to three-month Libor and receive fixed indexed to six-month Libor.
D)Pay fixed,receive floating on a reverse-amortization swap.

Question

Quizplus · Accepted Answer

You want to pay fixed and receive floating-when rates rise,the floating leg becomes more valuable.In a reverse-amortization swap,the underlying principal in fact increases over time,giving you more bang for the buck on a larger principal.Therefore,option (a)is good but (d)is even better.

You Have the View That Rates Will Be Rising Over