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liquidity

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tT
发表于 2013-4-17 17:39 | 只看该作者

Floating rate note question

note, question, addition, position, become
For an issuer of a floating-rate note, the market value of the loan will be:
A) volatile, but the position will become more stable with the addition of a receive-floating swap position.
B) relatively stable but the position will become less stable with the addition of a receive-floating swap position.
C) zero with the addition of a pay-floating swap position.

 

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YouCanDoIt

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2#
发表于 2013-4-17 17:39 | 只看该作者
I think I am messed up.

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koba

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3#
发表于 2013-4-17 17:40 | 只看该作者
The answer is B (duration of a floating-rate note is very small, market value is very stable). A and C increase duration because of the fixed leg.

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Houjichasan

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4#
发表于 2013-4-17 17:40 | 只看该作者
That seems right. The issuer has a floating rate liability (MV doesn’t change much), but the cash flow could. So they hedge by taken on a fixed rate liability (MV does change), but they rec the floating rate payments to satisfy the original FRN.

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invic

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5#
发表于 2013-4-17 17:40 | 只看该作者
Yep, the answer is B. I got confused by the issuer comment. I for some reason was thinking of issuing like a bank, but instead it meant issuing as a liability. Thus, they need the floating reception to even things out.

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bchadwick

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6#
发表于 2013-4-17 17:40 | 只看该作者
B- fixed payor has market risk, not cash flow risk.

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