A trader expects interest rates to increase. Rather than take a position in the bond market, the trader decides to use interest rate swaps to carry out the trade. What position would a trader with this set of expectations take in the interest rate swaps market?

Posted: January 10th, 2022

(a) A trader expects interest rates to increase. Rather than take a position in the bond market, the trader decides to use interest rate swaps to carry out the trade. What position would a trader with this set of expectations take in the interest rate swaps market?

(b) How would the trader’s position change if, instead of expecting interest rates to increase, the trader expected interest rates to decline? (LO 21.1)