Interest Rate Swap Strategies for ABC Corporation

ABC Corporation, a U.S. based manufacturer, has entered into a 5-year fixed-rate loan at a 6% interest rate. The company anticipates interest rates to decline over the next several years. To manage their interest rate exposure and potentially benefit from falling rates, they are considering entering into an interest rate swap.

Define and explain the concept of an interest rate swap. Then, describe how ABC Corporation can implement a swap strategy to hedge against its interest rate exposure. Include the potential impact of this strategy on the company’s cash flow and interest expenses.