8006 Exam Dumps | A company has a long term loan from a bank at a fixed rate of interest. It expects interest rates to

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PRMIA.8006.v2021-04-25.q101
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Question 100/101

A company has a long term loan from a bank at a fixed rate of interest. It expects interest rates to go down.
Which of the following instruments can the company use to convert its fixed rate liability to a floating rate liability?

A. A fixed for floating interest rate swap

B. A currency swap

C. A forward rate agreement

D. Interest rate futures

Correct Answer: A

Explanation
A fixed for floating interest rate swap would be the most appropriate to the company's needs. It will allow it to receive a fixed rate (which will offset the fixed payment it has to make on the loan) and pay a floating rate which it expects will be lower than the fixed rates. Choice 'a' is the correct answer.

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