Question

How are "Interest Rate Swaps" used by corporations and banks to hedged risks?

Answer 1

Interest rate swap (IRS) is an agreement b/w 2 parties to exchange one stream of interest payments for another, over a set period of time.

Swaps are:

1 Derivative contracts

and 2.) They Trade over-the-counter (OTC).

The most common and most liquid interest rate swaps are known as “vanilla” swaps. In Vanila Swaps parties exchange fixed-rate payments for floating-rate payments based on LIBOR.