# plain vanilla swap (mock exam)

I am confused about long/short side of plain vanilla interest rate swap. Again! After getting that question wrong on Sample 2, I learned that long side of P-V interest rate swap pays fixed and receives floating payments. Today, while doing Mock, I noticed how the question stated that company had bought floating rate note and decided to convert floating rate exposure into fixed rate exposure by going LONG interest rate swap, which is later referred to as P-V interest rate swap. But here the company is paying floating, receiving fixed - how can it be LONG P-V interest rate swap???

hmmmmmmmmmmmmm u sure?

Don’t know anymore… I believe it said that company converted floating rate exposure to fixed rate exposure by going long the swap. Am I interpreting it correctly?

tanyusha Wrote: ------------------------------------------------------- > Don’t know anymore… I believe it said that > company converted floating rate exposure to fixed > rate exposure by going long the swap. Am I > interpreting it correctly? well if they ISSUED floating they went long by paying fixed receiving floating - then it makes sense

They purchased floating. I have it written down

the company bought floating rate note, so it receives floating rate. In the swap, it should pay floating rate and receive fixed rate. If the company issue floating rate note, it pays floating rate. vice versa in the swap.

ggb, yeah, that makes sense. The question is whether this (“In the swap, it should pay floating rate and receive fixed rate”) is considered long or short side of P-V swap.

i got confused on this also. the company (galaxy) is paying floating recieving fixed … i checked on the net, paying fixed is going long. i think they are wrong.

^I’ve posted this before: If the first word is Paying ___ they are Long IF the first word is Receiving ____ they are short I’m pretty sure that will hold up for this Test, not in real life.

bigwilly Wrote: ------------------------------------------------------- > ^I’ve posted this before: > If the first word is Paying ___ they are Long > IF the first word is Receiving ____ they are > short > > I’m pretty sure that will hold up for this Test, > not in real life. how utterly random is that. why does the cfai world operate in vacuum with real world … Thank you

Big Willy: Can I extrapolate that out to this (I THINK it was in the CFAI readings but I like your explanation better) • US Company is PAYING a bill in Yen (it is Long) - therefore it should enter into a SHORT position in a SWAP position. Enter a SWAP to RECEIVE YEN and PAY Dollars. • US Company is RECEIVING Yen for repatriation into dollars (from operations or from a customer payment) (it is SHORT) - therefore the SWAP position it should be in is LONG. Enter a SWAP to PAY YEN and Receive Dollars. How am I doing? D_M

When it comes to swaps I;m going to do it BW style however just to clarify in terms of exhange rate risk with futures : …Being LONG the currency means you will be RECIEVING the foriegn currency . Being SHORT the currency means you will be paying the foriegn currency .

I think Data_Monkey is right: Say we are a US Company - -If we have to Pay YEN in 3 Months, we would enter into a 3 Month-Forward to Buy Yen (Long Yen) or we could Sell USD (Short Dollar). -If we have to Receive YEN in 3 Months, we could enter into a 3M forward to Sell Yen (Short Yen) or we could Buy USD (Long Dollar). I believe I have those right.

that is right, but Interest swap is STILL WRONG, i am sorry. If it was currency swap, then yes, you are right. Anyway if it said Long and PV is positive - you gain. if it said Short and PV negative - you gain

bigwilly Wrote: ------------------------------------------------------- > I think Data_Monkey is right: > Say we are a US Company - > -If we have to Pay YEN in 3 Months, we would enter > into a 3 Month-Forward to Buy Yen (Long Yen) or we > could Sell USD (Short Dollar). > -If we have to Receive YEN in 3 Months, we could > enter into a 3M forward to Sell Yen (Short Yen) or > we could Buy USD (Long Dollar). > > I believe I have those right. if you will receive yen = you are long yen = you offset it by selling yen fwd if you will pay yen = you are short yen = you offset it by buyiing yen fwd agree?

CSK, lets hope its not as clear as mud on test day.

^Hala you could be right. If we have to receive YEN then I guess we would want it to appreciate, so you would be Long right?

i think so