2003•Industrial Engineering and Engineering ManagementRequires access

Interest Rate Swaps,Economic Exposure and Mispricing of Firm's Debt

Chi Xie

Abstract

This paper examines how a firm chooses debt maturity in conjunction with interest rate swaps in order to pay the least cost on debt consistent with interest rate expectations.It shows that the firm uses interest rate swaps,because interest rate swaps not only enable efficient management of interest rate changes but also result in minimization of the cost of debt for the firm.

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Key concepts: Interest rate swap, Interest rate, Interest rate derivative, Debt, Monetary economics, Economics, Maturity (psychological), Business