Your firm currently has all fixed-rate debt. You would like to convert part of this to floating-rate debt. You should consider a(n):
A) Option on floating-rate bonds.
B) Forward contract on Treasury bills.
C) Interest rate swap.
D) Currency swap.
E) Interest rate call option.

Question

Quizplus · Accepted Answer

An interest rate swap is a financial derivative instrument that allows two parties to exchange interest rate payments, typically one fixed rate for one floating rate, on a specified principal amount. This is a common way for firms to convert fixed-rate debt to floating-rate debt or vice versa, without having to refinance or change the underlying debt instrument.

Your Firm Currently Has All Fixed-Rate Debt