The reason for why swap is effectively a series of forward contracts and nature of risk faced by the both the parties entering in swap agreement. Interest Rate Swap Swapping the interest rate helps the companies by allowing them to exchange their interest payments at the decided amount for a mutually agreed period of time. It is done to hedge towards adverse interest rate movements and to get a balance between fixed and variable debt.

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Chapter 25, Problem 9CQ

Summary Introduction

To explain: The reason for why swap is effectively a series of forward contracts and nature of risk faced by the both the parties entering in swap agreement.

Interest Rate Swap

Swapping the interest rate helps the companies by allowing them to exchange their interest payments at the decided amount for a mutually agreed period of time. It is done to hedge towards adverse interest rate movements and to get a balance between fixed and variable debt.

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