An Interest Rate Swap Is Commonly Used by an Issuer

question 29

Multiple Choice

An interest rate swap is commonly used by an issuer of fixed-rate bonds to:

• A) convert to floating-rate debt.
• B) hedge exchange rate risk.
• C) lock in the interest payments on debt.
• D) remove the default risk of its debt.

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Definitions:

Marginal Revenue Product

The additional revenue generated from using an additional unit of a resource or input.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a factor of production, holding all other inputs constant.

Variable Input

An input in the production process that changes in quantity with the level of output, such as raw materials or labor hours.

Wage

The fixed regular payment, typically calculated on an hourly, daily, or piecework basis, made by an employer to an employee.