Interest rate swap contracts have become very popular among participants in the investment community, particularly in managing

Question:

Interest rate swap contracts have become very popular among participants in the investment community, particularly in managing portfolios of fixed-income securities.
a. What is an interest rate swap, and how does it work?
b. How could a fixed-income manager use an interest rate swap to enhance performance or control risk? Briefly describe two examples.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...