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how a long term loan loan is converted into floating loan in currency swaps??
em bit confused.As far as the exam is concerned, the position is that some people prefer to borrow at floating rate, and some people want to borrow at fixed rate.
It might save us both interest is we borrow the opposite of what we really want (fixed or floating) and then we pay each others interest.
The same with currencies – I might want to borrow GBP’s and you might want to borrow in $’s. However if we both borrow in the other currency and then pay each others interest we might (only might – not always) be able to save some interest.
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