A company enters into an interest rate swap where it is paying fixed and receiving LIBOR. When interest rates increase, which of the following is true?
A. The value of the swap to the company increases
B. The value of the swap to the company decreases
C. The value of the swap can either increase or decrease
D. The value of the swap does not change providing the swap rate remains the same
A
It is receiving the floating rate. When interest rates increase the floating rate can be expected to be higher and so the swap becomes more valuable. The answer is therefore A.
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