An interest rate swap would buffer the bank against rising interest rates while protecting the finance company from lower ones.

Question

Quizplus · Accepted Answer

An interest rate swap allows one party to receive payments based on a variable interest rate and pay a fixed rate, or vice versa, thus a bank could protect against rising rates by receiving a variable rate, and a finance company could protect against falling rates by paying a variable rate and receiving a fixed rate.

An Interest Rate Swap Would Buffer the Bank Against Rising