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Your Firm Is Faced with Paying a Variable Rate Debt

question 23

Essay

Your firm is faced with paying a variable rate debt obligation with the expectation that interest rates are likely to go up. Identify two strategies using interest rate futures and interest rate swaps that could reduce the risk to the firm.


Definitions:

Demand

The desire and ability of consumers to purchase goods and services at given prices.

Regular Buyers

Consumers who frequently purchase goods or services from the same company or brand, showing loyalty or preference.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period.

Elastic

A term used in economics to describe a situation where the quantity demanded or supplied of a good or service is highly responsive to changes in its price.

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