Just think of the intuitive concept, the curve naturally slopes upward as longer time breeds more uncertainty so the premium that is payed for the protection is higher. When you think more risk lies in the short term, you buy short term and short long term protection, the impact of market demand as other do this raises short term premiums and lowers long term premiums thus flattening the curve. And the opposite scenario would result in a steeper curve.
Smarshy Wrote: ------------------------------------------------------- > Black Swan Wrote: > -------------------------------------------------- > ----- > > C or A, I’ll go C > > > C’mon Swanny, you taught ME this shiite. You can > do this stuff… Dude, I know, I was just b*tching to mumu online about having a shitty day, I log on and in my annoyance misread the question and totally wiffed on it. Which launched me into a crazed tirade. It was a total fluke but a funny scenario after the fact if you’d seen me. I almost sent my laptop through a window.
That helps, thanks.
Black Swan Wrote: ------------------------------------------------------- > Just think of the intuitive concept, the curve > naturally slopes upward as longer time breeds more > uncertainty so the premium that is payed for the > protection is higher. When you think more risk > lies in the short term, you buy short term and > short long term protection, the impact of market > demand as other do this raises short term premiums > and lowers long term premiums thus flattening the > curve. And the opposite scenario would result in > a steeper curve. This is the same way I think about this stuff.
thanks swanny, I understand it now 
“utilizing a floating rate line of credit in 90 days” means he will receive LIBOR payment or he will pay the LIBOR? I think it is the key to choose a payer swaption or receiver swaption. thanks. mcpass Wrote: ------------------------------------------------------- > Mark Roberts anticipates utilizing a floating rate > line of credit in 90 days to purchase $10 million > of raw materials. To get protection against any > increase in the expected London Interbank Offered > Rate (LIBOR) yield curve, Roberts should: > > A) buy a receiver swaption. > > B) buy a payer swaption. > > C) write a payer swaption. > > D) write a receiver swaption.
Well if he is utilizing it I interpret it as him taking out a floating rate line of credit which means he is a Floating Payer. When he initates this line he will be long interest rate risk and if he wants to hedge this risk we will want to exchange his floating payment for a fixed payment. buying a reciever swaption will give him the ability to enter into a pay fix recieve floating swap which would hedge the interest rate risk. If the rates in 90 days are less then the terms initiated in the swaption he would be better off letting it expire and take a new pay fix recieve float swap (not swaption). However if the rates are higher he will be able to pay fix on a lower rate which was deemed in the option.
receiver swaption is: the buy will receive fixed pay floating. Payer swaption : The buy will pay the fixed and receive floating. Corret me if I am wrong, but I think it is the term means. can anyone confirm that “utlizing floating rate line of credit” means he is receiving floating rate? Thanks. AFJunkie Wrote: ------------------------------------------------------- > Well if he is utilizing it I interpret it as him > taking out a floating rate line of credit which > means he is a Floating Payer. > > When he initates this line he will be long > interest rate risk and if he wants to hedge this > risk we will want to exchange his floating payment > for a fixed payment. > > buying a reciever swaption will give him the > ability to enter into a pay fix recieve floating > swap which would hedge the interest rate risk. > > If the rates in 90 days are less then the terms > initiated in the swaption he would be better off > letting it expire and take a new pay fix recieve > float swap (not swaption). However if the rates > are higher he will be able to pay fix on a lower > rate which was deemed in the option.
He is going to access a line of credit in which he must pay floating.
Which he then hedges with a payer swaption. I know, the wording is what mixed me up when I first read it. But it makes sense, I don’t know why it twisted me up so much.