Mr. Tan a very wealthy individual has just been told that interest rates are likely to rise over the next 2 years. He intends to enter an IRS in order to prot from rising rates.

1. What should his position be in the swap. Fixed rate or oating rate payer?

2. Assuming the notional principal is RM 10 mil, and 6-month reset frequency, determine his prot or loss if rates increase 2% over the rst 6 months. (At initiation assume the current oating rate equals the proposed xed rate).

3. What is his prot or loss if interest rates fall 1.5% over the rst 6 months?