Suppose that a life insurance company has issued a three-year GIC with a fixed-rate of 10%. Under what circumstances might it be feasible for the life insurance company to invest the funds in a floating-rate security and enter into a three-year interest-rate swap in which it pays a floating rate and receives a fixed-rate?
Answer to relevant QuestionsHow do market participants gauge the default risk of a bond issue? How can interest rate swap be used to reduce the duration of portfolio to match the duration of a benchmark? Answer the below questions. (a) For a single-name credit default swap, what is the difference between physical settlement and cash settlement? (b) In physical settlement, why is there a cheapest-to-deliver issue? In an April 21, 2011 article in Bloomberg.com by Abigail Moses entitled, “Greece, Portugal Sovereign Credit-Default Swaps Jump to ...Why does a credit default swap have an option-type payoff?
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