Evaluating Interest Rate Swap Strategies for XYZ Corporation

XYZ Corporation, a U.S.-based multinational, is currently facing a rising interest rate environment. The company has floating-rate debt linked to LIBOR and expects that interest rates will continue to rise over the next few years. To manage its interest rate exposure and stabilize its debt servicing costs, XYZ is considering implementing a swap strategy.

As the head of treasury, your task is to evaluate the potential benefits and risks of using an interest rate swap to convert XYZ's floating-rate debt to fixed-rate debt. Discuss the mechanics of an interest rate swap and explain how such a swap might help XYZ Corporation in the current interest rate environment. Additionally, analyze the risks associated with this strategy, including counterparty risk and market risk.