Explain how a swaption can be terminated at expiration by either exercising it or settling it in cash. Why are these procedures financially equivalent? Explain how the two types of swaptions are like interest rate options and how they are different?
Explain how a bank could use a swaption to hedge the possibility that it will enter into a pay floating, receive-fixed swap at a later date? Explain how a forward swap is like a swaption and how it is different.