Refers to the same currency swap between the different interest rates, without the exchange of principal, mainly used for hedging interest rate risk or speculative risks. There are two types of interest rate swap: swap between fixed-rate and floating interest rate, swap between floating rates.
Benefits
·
Fix financing cost and marginal profits.
·
Avoid the risks of interest rate fluctuation.
Potential risks
Interest rate swap means the exchange of one set of cash flow for another, which is reasonable on the basis of the new cash flow meeting your expectation of market interest rate trend, but once the future interest rates is not consistent with your expectation, you will have the opportunity cost which forms the risk.
Note:
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