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QUESTION
Company A needs capital, and the CFO thinks interest rates are going higher.
- Company A needs capital, and the CFO thinks interest rates are going higher. Analyst A suggests a fixed rate bank borrowing, but Analyst B suggests that borrowing should be avoided and the company should execute an interest rate swap where the company pays floaring and receives fixed. Analyst C agrees about avoiding the borrowing but says the company should execute a pay fixed receive floating swap. Which analyst is correct?
- You're a company that is receiving a floating and paying a fixed rate on a 5y interest rate swap, and you now wish to reverse the position. You call investment bank X for a quote on a 5y interest rate swap. They quote you 2.85%/3.00%. Do you execute at 2.85 or 3% to reverse the position?
