Question: Consider the same 3 year swap Suppose you are a dealer
Consider the same 3-year swap. Suppose you are a dealer who is paying the fixed oil price and receiving the floating price. Suppose that you enter into the swap and immediately thereafter all interest rates rise 50 basis points (oil forward prices are unchanged). What happens to the value of your swap position? What if interest rates fall 50 basis points? What hedging instrument would have protected you against interest rate risk in this position?
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