24-56 Why were the 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. The bonds are structured in a way to pass on interest rate risk to the investor, resulting in a higher coupon rate for the investor but a lower borrowing cost for the government agency.

24-56 Why Were the Inverse Floaters Developed