In a total return swap, one party, the payer, is able to confidently remove all the economic exposure of the asset without having to sell it. The receiver of a total return swap, on the other hand, is able to access the economic exposure of the asset without having to buy it.

The party that agrees to make the floating payments and receive the total return is the total return receiver, while the party that agrees to receive the floating payments and pay the total return is the total return payer. The total return receiver is exposed not only to credit risk but also to interest-rate risk. If the credit risk spread declines, for example, there would be favorable price movement (price increase) for the reference obligation, but any gain made on that front can be offset by a rise in the level of interest rates.

Expecting the credit risk spread to decline (in line with the report) and not expecting interest rates to decline, Ms. Zane would enter the total return swap as the total return receiver. Based on the report, she has reasons to believe that the fortunes of Fortune Corporation will improve over the next year, triggering a decline in the firm’s credit spread relative to U.S. Treasury securities, which will, in turn, result in a favorable price movement. As the total return receiver, Ms. Zane would profit from the decrease in spread.