Can someone help me understand Complex financial terms such as interest rate swaps?Answer Question
Yes you are right interest rate swaps are not only complex terms but a complex financial tool as well. Interest rate swaps are meant to reduce the risks of a company. The most common of the swaps is a plain-vanilla swap. In this agreement, one party pays a fixed rate and the other party pays a floating rate. You will receive more money from the other party while you pay a fixed rate with your lender. If the rate goes down, you will receive lesser money but you will be paying less to your lender. You were cautious not to put your company in a situation where it will be paying so much interest that it cannot even earn from its investments. See mis sold interest rate swaps.
Answer by FlorineBerz at 7:16 PM on Dec. 9, 2012