Explain how a firm could use a swap to hedge its interest rate exposure under a two-year bill facility, and demonstrate how the swap determines its effective interest rate for the first two quarters of the facility, assuming that it commences in June and the swap rate is 6%.Assume further that 90-day BBSW is 5.45% in June and 5.55% in September, and that the swap periods are 90 days.

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The Answer of Explain how a firm could use a swap to hedge its interest rate exposure under a two-year bill facility, and demonstrate how the swap determines its effective interest rate for the first two quarters of the facility, assuming that it commences in June and the swap rate is 6%.Assume further that 90-day BBSW is 5.45% in June and 5.55% in September, and that the swap periods are 90 days.

Explain How a Firm Could Use a Swap to Hedge