A state university's activities are reported in the state CAFR as a proprietary fund. The university issues variable rate debt and hedges its interest rate risk with a receive variable/pay fixed interest rate swap. If market interest rates increase, how is the derivative investment, reported on the state's proprietary funds statement of net position, affected?

Question

Quizplus · Accepted Answer

When market interest rates increase, the value of a receive variable/pay fixed interest rate swap increases for the holder, because they benefit from receiving higher variable interest payments while their own payment obligations remain fixed.

A State University's Activities Are Reported in the State CAFR