Looking at 2015 Schweser Vol 2 Exam 1 Afternoon Q 44.
Basically the company has fixed loan and expects the rate to go down so enters a receive fixed, pay float swap. The answer is saying that by entering this swap, the absolute duration of the liabilities will decrease. Can someone please explain?
Receive fixed/pay float swaps have positive duration and I assume that it was something to do with duration of assets vs. duration of liabilities but I can’t see why entering into this swap would reduce duration.