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what were going to be going over here is a fair value hedge as an interest rate swap and what we mean by an interest rate swap this is where you convert from a fixed interest rate on your depth to a variable interest rate if so in these terms here look at core pay here where the issue some bonds or could be a notes payable here and just say they had five million dollars worth at a fixed interest rate here of 8% per year and so they sell the bonds through these bond investors and theyre going to have to pay a fixed interest rate here of 8% that a bond investors here and at the same time corporation a enters into with this interest rate swap contract and they enter it into with another party here lets just call it the swap counterparty here and the swap counterparty here is willing to pay the corporation a the fixed interest rate here so of 8% so corporation a is going to receive a fixed interest rate of 8% on these bonds that they issued here and it would be paid by the swap counter
