Financiers are always swapping interest rates. In the simplest version, a fixed-for-floating swap, one party agrees to pay a fixed interest rate in return for receiving a floating interest rate. A common reason is that the party has issued floating-rate debt and wishes to fix its payments.rnWhy not just issue fixed-rate debt in the first place? Perhaps investors preferred floating-rate debt, so the issuer got a better rate. Or maybe the decision to issue floating-rate debt had been made some time in the past, when the issuer expected interest rates to decline - but now its expectations are that interest rates wil! Rise.rnIn a typical contract, one party might agree to pay 1 per cent fixed interest quarterly on $100 million ($100 million x 1 per cent /rn4 = $250,000 every quarter) for five years, in return for the other party paying three-month Libor.
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