Company X Issues Variable-Rate Debt but Wishes to Fix Its

question 30

Multiple Choice

Company X issues variable-rate debt but wishes to fix its interest rates because it believes the variable rate may increase.Company Y has a fixed-rate bond but is looking for a variable-rate interest because it assumes the interest rates may decrease.The two companies agree to exchange cash flows.Such an arrangement is called:

• A)a futures contract.
• B)a forward contract.
• C)a swap.
• D)an option.

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Definitions:

Unlimited Liability

A legal obligation where business owners and investors are personally responsible for all of the debts of the business.