# Financial solutions - Interest rate swaps

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Financial swaps swap a risk with someone else.

Most common are interest rate swaps.

Almost every company uses or considers using them re: their debt payments.

# Corporate Debt

1. Company-specific interest rate
2. #LIBOR - London Inter-Bank Offer Rate


1. Each company has it's own interest rate 

2. LIBOR floats and changes based on the Fed/central bank rate 
	1. Variable rates
	2. Floating rates

Company's rate = Libor+
	- LIBOR + Company Specific rate
	
LIBOR is usually just above the cash rate

Interest swaps swaps out the floating interest rate. 

You buy a slightly higher interest rate for 5 years to make sure you're covered if the LIBOR rate climbs above the rate you bought the swap at. 

eg. LIBOR --> 1% .: Buy 5-year swap @2%
then LUBOR --> 3% .: you still pay 2%

Typical to lose money up front but you're hedged against big swings up.

Company can still lose money if the LIBOR rate falls instead of rises after buying the swap.