Plain Vanilla Swap - who is who?

CFA Level I Derivatives
#1

Hi everybody,

I have some trouble with this:

“HobbyHorse has entered into a plain vanilla interest rate swap on 100,000,000 notional principal. HobbyHorse receives a fixed rate of 7.5% on payments that…”

I am always confused as to who gets what. If a company receives a fixed rate of 7.5% I would assume they have to pay 7.5%, no? According to Schweser receiving a fixed rate = receiving the payments

#2

In this example, HobbyHorse should receive a fixed rate of 7.5%, and pay the counterparty a floating rate of x.x%. HobbyHorse therefore becomes exposed to interest rate changes, and will be hoping rates will decline so the floating rate payment they PAY, becomes less than the fixed rate payment they RECEIVE.

#3

Yes, that is what Schweser says as well, however I find the language misleading, don’t you think? Two parties are exchanging fixed and floating rates and in the example it says “HobbyHorse receives a fixed rate”. With that information I would think the party that receives the fixed rate in the swap has to pay it. Well, maybe I am making things more complicated than they are…

#4

“HobbyHorse receives a fixed rate” = HobbyHorse receives the income stream from fixed rate payments

#5

Wait what? The party that receives fixed pays floating. That’s about it.