Some fixedrate CMBS securitizations may include floatingrate

Some fixed-rate CMBS securitizations may include floating-rate tranches, an apparent contradiction. This conversion is accomplished by means of a(n)

a) Credit default swap

b) Interest rate cap

c) Interest rate swap

d) Floating rate option

Solution

Option (c) Interest Rate Swap

IRS helps the lender to convert the fixed interest rate to floating rate through mutual agreement. It is usually carried out to reduce or increase the exposure to fluctuations in interest rates.