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Level 2: Derivatives question
Exactly one year agao, GlobeCorp entered into a 3 year payer interest rate swap with semiannual floating rate payments based on LIBOR and semmiannual fixed rate payments based on annual rate of 2.75%. At initiation, the value of swap was 0. The cunterparty is NVS Bank. The current LIBOR term structure is L(90)=2.25%, L(180)=2.45%, L(270)=3.2%, L(360)=3.75%, L(450)=4.2%, L(540)=3.8%, L(630)=3.1%, L(720)=2.40%.
Question: Which of the following statements regarding the GlobeCorp swap initiated one year ago is most likely correct?
A. NVS Bank has greater current credit risk than GlobeCorp.
B. The value of the swap to GlobeCorp has increased since initiation.
C. GlobeCorp's upcoming payment will be lower than its previous payment.
Why the correct answer is A? Why not B?
Thanks! |
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发表于 2013-9-12 11:37
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