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CFA Level 3
Derivatives & Currency Mgmt

Hedging Interest Rate Risk with Swaps

Easy Derivative Strategies Swap Strategies

Jane is a portfolio manager at WealthGrow Investments and is currently reviewing the firm's fixed-income exposure. Interest rates are expected to rise, and Jane is concerned about the impact this will have on the existing bond portfolio. To mitigate the risk of rising interest rates, Jane considers using interest rate swaps.

She has the option to enter into a receiver swap, where her firm would receive fixed payments and pay floating payments based on a benchmark rate. This would allow Jane to benefit if fixed rates fall or hedge against rising rates. What type of strategy should Jane choose to effectively hedge against rising interest rates?

Hint

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