If up until the end of year 5, floating rates were exactly equal to forward rates but in years 6-10 forward rates move up by 100 basis points (that is 1.00%) more than estimated at inception. What is the value of the swap at the beginning of year 6? If you are the fixed payer on the swap are you exposed to the risk of your counterparty defaulting or are they exposed to you defaulting?

Answer rating: 100% (QA)

To calculate the value of the swap at the beginning of year 6 we need to consider the cash flows of both parties and discount them back to the beginni... View the full answer