Benefits of Interest Rate Swaps in Hedging

Easy Risk Management Derivatives In Risk Management

Alpha Wealth Management is reviewing a portfolio that contains a large allocation to U.S. corporate bonds. To mitigate the risk of rising interest rates, the portfolio manager is considering the use of interest rate swaps as a hedging strategy. The objective is to convert the portfolio's fixed-rate exposure into floating-rate exposure, thereby reducing its sensitivity to interest rate increases.

In this context, what is the primary benefit of using interest rate swaps for this purpose?

Interest rate swaps eliminate the need for ongoing monitoring of interest rate movements.

Interest rate swaps effectively transform fixed-rate cash flows into floating cash flows.

Interest rate swaps provide a guaranteed return regardless of market conditions.

Hint

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