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Chapter 6
2.2 Introduction to swaps
Swaps can be used to change the interest rate or currency profile of
borrowings (e.g. fixed to floating and EUR to GBP borrowings) in line
with capital structure targets and to manage risk.
Examples
Interest rate swap
It might be cheaper for a company to issue a bond plus enter a swap to
change the interest profile than raise floating rate bank borrowings directly.
Cross currency swap
It might be cheaper for a company to borrow in a global currency such as
USD or EUR and then use a cross currency swap to change the currency
profile to the home currency or a second foreign currency.
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