# sample 2. - swap & credit risk

i really need someone to help me out. as far as i know, V(swap) = PV(fixed) - PV(floating). If the value of a swap at a time is negative, then the side that receiving fixed and paying floating is lossing money and therefore facing NO credit risk. what did i do wrong? or is the cfai wrong on this one?

They are receiving fixed = Short side of swap. To the Negative is a Positive to the Short side… My beef with that question is they ask about Current Credit Risk which there is 0 b/c the Swap still have 2 months or so to go…there is the Potential of the 450K or so whatever it was… That really chaps my a\$\$

bigwilly Wrote: ------------------------------------------------------- > They are receiving fixed = Short side of swap. To > the Negative is a Positive to the Short side… are you saying V(swap) = PV(floating) - PV(fixed)?

The annoying part is the way they stated it: Recieve Fixed, Pay Floating = Your Short the Swap Pay Fixed, Receive Floating = Your Long the Swap Receive Floating, Pay Fixed = Your Short the Swap Pay Floating, Recieve Fixed = YOur Long hte Swap

bigwilly Wrote: ------------------------------------------------------- > The annoying part is the way they stated it: > > Recieve Fixed, Pay Floating = Your Short the Swap > Pay Fixed, Receive Floating = Your Long the Swap > > Receive Floating, Pay Fixed = Your Short the Swap > Pay Floating, Recieve Fixed = YOur Long hte Swap That absolutely makes no sense

bigwilly Wrote: ------------------------------------------------------- > The annoying part is the way they stated it: > > Recieve Fixed, Pay Floating = Your Short the Swap (agree!) > Pay Fixed, Receive Floating = Your Long the Swap (agree!) but, i wont change the fact that v(swap) = pv(fixed) - pv(floating). didn’t we learn it all along since L1?

CSK - I’m pretty sure that is how CFAI lays it out. That’s how it was on the Sample Exam, b/c it was written Recieve Fixed, Pay Floating they were SHORT

bigwilly Wrote: ------------------------------------------------------- > The annoying part is the way they stated it: > > Recieve Fixed, Pay Floating = Your Short the Swap > Pay Fixed, Receive Floating = Your Long the Swap > > Receive Floating, Pay Fixed = Your Short the Swap > Pay Floating, Recieve Fixed = YOur Long hte Swap Are they the same? How can it be both long and short? Pay Fixed, Receive Floating = Your Long the Swap Receive Floating, Pay Fixed = Your Short the Swap

bigwilly Wrote: ------------------------------------------------------- > The annoying part is the way they stated it: > > Recieve Fixed, Pay Floating = Your Short the Swap > Pay Fixed, Receive Floating = Your Long the Swap > > Receive Floating, Pay Fixed = Your Short the Swap > Pay Floating, Recieve Fixed = YOur Long hte Swap Hmmm… Long Swap = Fixed Rate Payer correct? All thes play on words is driving me crazy!!! lol

Elcaro, its because they are two differrent swaps. If I go Pay Fixed and Receive Floating (then I’m the long party), the opposite side is receiving the fixed and paying the floating rate (so they are short)

PJStyles Wrote: ------------------------------------------------------- > bigwilly Wrote: > -------------------------------------------------- > ----- > > The annoying part is the way they stated it: > > > > Recieve Fixed, Pay Floating = Your Short the > Swap > > Pay Fixed, Receive Floating = Your Long the > Swap > > > > Receive Floating, Pay Fixed = Your Short the > Swap > > Pay Floating, Recieve Fixed = YOur Long hte > Swap > > Hmmm… Long Swap = Fixed Rate Payer correct? > All thes play on words is driving me crazy!!! > lol “The party that pays fixed and receives floating coupon rates is said to be long the interest swap.” From wikipedia. As i said there can be only 1 Long and only 1 Short. When you go ‘long’ in interest swap it means you are going long the interest rate

comp_sci_kid Wrote: ------------------------------------------------------- > PJStyles Wrote: > -------------------------------------------------- > ----- > > bigwilly Wrote: > > > -------------------------------------------------- > > > ----- > > > The annoying part is the way they stated it: > > > > > > Recieve Fixed, Pay Floating = Your Short the > > Swap > > > Pay Fixed, Receive Floating = Your Long the > > Swap > > > > > > Receive Floating, Pay Fixed = Your Short the > > Swap > > > Pay Floating, Recieve Fixed = YOur Long hte > > Swap > > > > Hmmm… Long Swap = Fixed Rate Payer correct? > > All thes play on words is driving me crazy!!! > > > lol > > “The party that pays fixed and receives floating > coupon rates is said to be long the interest > swap.” > > From wikipedia. As i said there can be only 1 Long > and only 1 Short. When you go ‘long’ in interest > swap it means you are going long the interest rate I agree with you CSK but there are inconsistencies in CFAI smaples. In one instance the vignette explicitly says that the party longs a swap by paying floating and receivign fixed. In another example, their answer explains that the party is in short position in the swap by paying floating and receiving fiexed.

juve_fan Wrote: ------------------------------------------------------- > comp_sci_kid Wrote: > -------------------------------------------------- > ----- > > PJStyles Wrote: > > > -------------------------------------------------- > > > ----- > > > bigwilly Wrote: > > > > > > -------------------------------------------------- > > > > > > ----- > > > > The annoying part is the way they stated > it: > > > > > > > > Recieve Fixed, Pay Floating = Your Short > the > > > Swap > > > > Pay Fixed, Receive Floating = Your Long the > > > Swap > > > > > > > > Receive Floating, Pay Fixed = Your Short > the > > > Swap > > > > Pay Floating, Recieve Fixed = YOur Long hte > > > Swap > > > > > > Hmmm… Long Swap = Fixed Rate Payer correct? > > > > All thes play on words is driving me > crazy!!! > > > > > lol > > > > “The party that pays fixed and receives > floating > > coupon rates is said to be long the interest > > swap.” > > > > From wikipedia. As i said there can be only 1 > Long > > and only 1 Short. When you go ‘long’ in > interest > > swap it means you are going long the interest > rate > > > I agree with you CSK but there are inconsistencies > in CFAI smaples. > > In one instance the vignette explicitly says that > the party longs a swap by paying floating and > receivign fixed. > > In another example, their answer explains that the > party is in short position in the swap by paying > floating and receiving fiexed. CFAI if that would be the only inconsistency i would be happy