For a floating rate borrower wishing to hedge an exposure to higher than expected spot rates, interest rate swaps lock in varying forward rates in the same way as a strip of FRAs or a strip of BAB futures.

Question

Quizplus · Accepted Answer

Interest rate swaps lock in a fixed rate for the borrower, not varying forward rates, unlike a strip of FRAs or BAB futures which can be used to hedge against changes in spot rates.

For a Floating Rate Borrower Wishing to Hedge an Exposure