If a Floating Rate Borrower Hedges Their Interest Rate Risk

question 25

Multiple Choice

If a floating rate borrower hedges their interest rate risk by entering a swap as the fixed rate payer, and the swap subsequently develops a negative value:

• A)then the swap has not been an effective hedge
• B)the cost of funds for the borrower will rise
• C)then the borrower has paid lower than expected interest to their lender
• D)the cost of funds will exceed the swap rate
• E)then the borrower has paid higher than expected interest to their lender.

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Definitions:

Peer Review

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Case Study

A research method involving an up-close, in-depth, and detailed examination of a subject of study (the case), as well as its related contextual conditions.

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