Understanding Swap Strategies: Interest Rate Swaps

Very Easy Derivative Strategies Swap Strategies

A financial manager is considering the use of interest rate swaps to manage a company's exposure to fluctuating interest rates. The company currently has a floating rate loan and wants to transform this into a fixed rate to achieve predictability in cash flows. The manager is evaluating the impact of entering into a swap agreement with a counterparty, where the company would pay a fixed rate and receive a floating rate.

Which of the following statements accurately describes this swap strategy?

The company transforms its cash flows from fixed to floating.

The company is hedging against rising interest rates by paying a fixed rate.

The swap will enhance the company's exposure to market interest rate fluctuations.

Hint

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