Learning Goal: I’m working on a business practice test / quiz and need the explanation and answer to help me learn.
Answer every question in the document I attached and answer this question as well:
Describe an interest rate swap and give an example based on the following information. A company with a comparative advantage in the fixed-rate market desires a floating-rate investment; and vice versa. A diagram should be used to describe the swap transaction. Explain, in words, why swaps are used to manage the risk of interest rates changes.