IFoA SP6 Practice Questions - IFoA SP6 Financial Derivatives Specialist Principles Exam

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In a plain vanilla interest rate swap, party A pays a fixed rate and receives a floating rate (e.g. SOFR) on the same notional. What is party A's primary economic exposure?

A benefits if floating rates rise above the fixed rate A benefits if floating rates fall below the fixed rate A has no rate exposure because the notional is never exchanged A is exposed only to changes in the notional principal

Correct Answer:

A benefits if floating rates rise above the fixed rate

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