Question: At time=0 company A enters an 3y interest rate swap with a bank, where A recieves floating and pays fixed. After 1y, at t=1, the inflation changes from 1% to 3% does this affect the MV of the swap?
nominal rate = real rate + inflation and the nominal is fixed here in this interest rate swap, the real rate A pays will go down hence they are better off.
Attempt 2: If A were to enter an IRS at t=1 they would have to pay a higher fixed rate than they do in the IRS they entered at t=0 so they are better off.
Is this correct?