Why were inverse floaters developed?
A)To exchange specified periodic cash flows in the future based on some underlying instrument.
B)To better manage their interest rate, foreign exchange, and credit risks of corporate enterprises.
C)To lower the cost of financing for government agencies.
D)To determine payments and timing of payments when there is no standardized contract.
E)To keep the swap market liquid by locating or matching counterparties.

Question

Quizplus · Accepted Answer

Inverse floaters were developed to lower the cost of financing for government agencies. They offer a way to finance at rates below the prevailing market rates by providing an interest payment that moves inversely to a reference rate, thus potentially reducing financing costs when interest rates rise.

Why Were Inverse Floaters Developed