Browning Enterprises currently has all fixed-rate debt.The firm would like to convert part of this to floating-rate debt.Which one of the following will accomplish this for the firm?
A)option on floating-rate bonds
B)forward contract on U.S. Treasury bills
C)interest rate swap
D)currency swap
E)interest rate call option

Question

Quizplus · Accepted Answer

To convert fixed-rate debt to floating-rate debt, the firm can enter into an interest rate swap. In an interest rate swap, the company agrees to exchange fixed-rate payments for floating-rate payments with a counterparty. By doing so, the company can benefit from potentially lower interest rates on the floating-rate component of the swap, while still having fixed-rate debt on its balance sheet. The other options listed are not directly related to converting fixed-rate debt to floating-rate debt.

Browning Enterprises Currently Has All Fixed-Rate Debt