Question
In: Finance
How would an interest rate derivative be used to address the interest cash flow mismatch in...
How would an interest rate derivative be used to address the interest cash flow mismatch in securitization consisting of fixed rate loans in which floating rate securities are issued?
Solutions
Expert Solution
Interest rate derivative can be used to help the interest cash flows mismatch in securitization consisting of fixed rate loan by entering into interest rate swap which is an example of derivatives and which will be helping in exchanging of the fixed leg of interest payment with the floating leg of interest payment which will be consistently adjust with the prevelant market rate of interest.
Interest rate swaps are a types of derivative which will be helpful in maintenance of exposure related to payments of interest and it can be helpful in adjusting with the the current market scenario and avoiding the excessive fluctuation in the interest rate so these are the swaps which will be entered with the another party and they are exchanging the floating leg of Interest with fixed leg of interest and vice-versa.
So,it can be summarised that the interest rate swaps can be used to address the interest cash flow mismatch in securitization which will be consisting of fixed rate loan.
jeff jeffy answered 1 year agoRelated Solutions
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