A Pension Fund entered into a 3-year interest rate swap last reporting period when the structure of Libor rates was as displayed in Exhibit 1. Recent year-end reporting attribution showed a gain on swap derivatives. Given the recent stress in the banking system over the last reporting period, swap spreads widened while the government par curve displayed a slight bear steepener.
| t | rₜ |
| 0.50 | 1.10% |
| 1.00 | 1.35% |
| 1.50 | 1.75% |
| 2.00 | 2.40% |
| 2.50 | 3.05% |
| 3.00 | 3.50% |
Determine, if the fund was paying the fixed rate or receiving the fixed rate under the swap. Explain your selection.