If a U.S. institution in a forward swap would like to lock in the fixed rate that it will pay when the swap period begins, it is probably concerned that interest rates will ____; the counterparty is likely adversely affected by ____ interest rates.

Question

Quizplus · Accepted Answer

The U.S. institution wants to lock in a fixed rate because it is concerned that interest rates will increase, which would make borrowing more expensive. The counterparty, on the other hand, is likely concerned about declining interest rates, which would reduce the amount they earn on the swap.

If a US Institution in a Forward Swap Would Like to Lock