Good credit firms borrow fixed rate and swap for floating ra

Good credit firms borrow fixed rate and swap for floating rates in order to transform their debt structure to short term 1) True 2) False

Solution

Solution:

Credit firms have two types of debt -Interest rate sensitive and interest rate insensitive.

Fixed rate loans are not interest rate sensitive while floating rate is sensitive to interest

So when a credit firm enters into swap by Borrowing a fixed rate for floating rate then they are actually changing the interest rate insensitive debt to interest rate sensitive debt. The debt structure becomes short term

So this statement is true