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The writer of a payer swaption has: the right to enter a swap in the future as t

ID: 2790201 • Letter: T

Question

The writer of a payer swaption has:

the right to enter a swap in the future as the floating-rate payer.

the right to enter a swap in the future as the fixed-rate payer.

an obligation to enter a swap in the future as the floating-rate payer.

an obligation to enter a swap in the future as the fixed-rate payer.

A.

the right to enter a swap in the future as the floating-rate payer.

B.

the right to enter a swap in the future as the fixed-rate payer.

C.

an obligation to enter a swap in the future as the floating-rate payer.

D.

an obligation to enter a swap in the future as the fixed-rate payer.

Explanation / Answer

In a payer swaption, the purchaser has the right, but not the obligation, to enter into a swap contract where he becomes the fixed-rate payer and the floating-rate receiver.

Therefore answer is B.

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