Banking · Financial Risk Management
To hedge a 300 crore rupees balance sheet mismatch (floating-rate liability funded by fixed-rate bond investments), Universal Bank (UB) should enter into an Interest Rate Swap where:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1UB pays a fixed rate on the asset and receives a floating rate on the liability, with a net cash flow of zero.
- 2UB pays the fixed rate and receives the floating rate, based on the 200 crore rupees notional principal.
- 3UB pays the floating rate and receives the fixed rate, based on the 300 crore rupees notional principal.
- 4UB pays the fixed rate and receives the floating rate, based on the 300 crore rupees notional principal.✓
Correct answer
UB pays the fixed rate and receives the floating rate, based on the 300 crore rupees notional principal.
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