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Question
Assume that two firms, one considered a high credit risk (HCR) and the other a low credit risk (LCR), are considering an interest rate swap. Each can borrow at the following rates:
An interest rate swap would be beneficial to both parties if:
A. the LCR firm wants to borrow at the fixed rate and the HCR firm wants to borrow at the variable rate.
B. the HCR firm wants to borrow at the fixed rate and the LCR firm wants to borrow at the variable rate.
C. both firms want to borrow at the variable rate.
D. both firms want to borrow at the fixed rate.
E. an interest rate swap would be never beneficial in this situation.
Answer
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