If a company that had a floating-rate liability wanted to enter into a swap to achieve a fixed-rate cost of funds,it would pay a:
A) fixed rate to the counterparty and receive a floating rate in return from the counterparty.
B) floating rate to the counterparty and pay a floating rate to the fixed-rate lender.
C) floating rate to the counterparty and pay a fixed-rate to the fixed-rate lender.
D) floating rate to the counterparty and receive a fixed-rate in return from the counterparty.

Question

Quizplus · Accepted Answer

To achieve a fixed-rate cost of funds when currently having a floating-rate liability, a company would enter into a swap where it pays a fixed rate to the counterparty and receives a floating rate in return. This swap effectively converts the company's floating-rate liability into a fixed-rate liability, aligning with its goal.

If a Company That Had a Floating-Rate Liability Wanted to Enter