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welcome to interest rate swamps in this tutorial well see how two companies can help each other lower their borrowing costs through a swap agreement lets consider an example of companies A and B that want to borrow a million dollars each for a 5-year period with annual compounding and they want to borrow at the lowest possible rate company a expects interest rates to de line in the future and therefore wants floating rate borrowing while Company B expects interest rates to rise and wants to lock in the fixed rate available to it although company a wants to borrow at a floating rate it plans to borrow at a fixed rate and then swap its cash flows with companies B that wants to do the opposit in the process both companies intend to lower the borrowing costs and wind up with the type of borrowing they wanted at the first place this is very typical of an interest rate swap where two parties with opposing needs make an agreement to swap future cash flows lets take a look at the rates inve
