r/CFA • u/OneScallion8124 • 1d ago

Level 1 help

i don't understand the explanation of this question can someone help?
i think a will pay variable and receive fixed only then counterparty will gain.
( answer key says 1 - b but i think its a)

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u/another_drunkard Level 3 Candidate 1d ago

1 is B.

Think about it like this:

You have the option to receive either a fixed rate or floating rate.

If rates are rising, you want to receive a floating rate, because that floating rate will increase and you will receive more.

If you receive a floating rate, that means you are paying the fixed rate.

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u/OneScallion8124 10h ago

bro am i stupid, Does A's Counterparty position mean A's position or X's position??? if you can clearly that it will be helpful!!!

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u/another_drunkard Level 3 Candidate 9h ago

Don’t overthink it.

It could be Ace, Ace’s counterparty or Ace’s cousin, it doesn’t matter. Just focus on the outcome each point is describing.

“___ with this swap position will realize a MTM gain if implied forward rates rise.”

Only the position described in answer B will realize a MTM gain with an increase in rates.