True or False 1) If you rcv fixed & pay float, you are considered to be short a swap? 2) If you are short a swap with a market value of -$50, you have $50 of credit risk because you are short a swap with a negative market value?
- true? 2) true
Thats what I thought until I saw Q16 in the CFA mock…they pay variable, rcv fixed (which I thought meant they are short)…and the MV is negative (which I thought meant the short has the credit risk. But the answer says that bcuz the MV is negative…they dont have any credit risk.
I think the problem said something like the market value on their books is negative, so whether they are short or long the swap, they owed money on the contract so had no credit risk. That’s all I’m going to take away from this one.
“short” a swap means receive fixed… because you are short the swap spread and you think itll come down, so you would receive the fixed leg and pay floating
In currency swap the long side has the MV of the following MV = S_t/(1 + R_f)^t - F/(1+R_d)^t where t is time to completion… so if S_t is expressed in terms of DC/FC…the long side is long what?..is he going to receive FC?..this always confuses me…