A company that borrows at a floating rate and uses a swap to convert into a fixed rate is assuming some credit risk.

Name: A company that borrows at a floating rate and uses a swap to convert into a fixed rate is assuming some credit risk.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

When a company enters into a swap to convert its floating rate debt into a fixed rate, it is exposed to credit risk from the counterparty. If the counterparty defaults, the company may not receive the fixed rate it expected, which can impact its financial position.

A Company That Borrows at a Floating Rate and Uses