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Hi sir
I was wondering why would companies choose swaps as a hedging strategy over the futures and options?
Thanks
Interest rate swaps (which are what are in the F9 syllabus, although you cannot be required to do calculations on them) are used either to change floating rate interest into fixed rate interest (or vice versa, depending on which they prefer), or (more likely as far as the exam is concerned) to reduce the interest payable.
Futures and options are completely different in that they either fix the fixed interest payable (in the case of futures) or fix the maximum interest payable if borrowing (in the case of options).I do explain this in my free lectures on the management of interest rate risk.
(The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.)
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