Describe an interest rate swap and give an example based on the following information. A company with a comparative advantage in the fixed-rate market desires a floating rate investment; and vice-versa. Explain, in words, why swaps are used to manage the risk of interest rate changes.

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An interest rate swap is a financial contract between two parties where they agree to exchange interest rate payments for a specified period of time These payments are based on a notional principal am... View the full answer