Comparative-Advantage / SWAP
I just read the following: "An explanation commonly put forward to explain the popularity of swaps concerns comparative advantages. Consider the use of an interest rate swap to transform a liability. Some companies, it is argued, have a comparative advantage when borrowing in fixed-rate markets, whereas other companies have a comparative advantage in floating-rate markets"
Could somebody please give me examples of industries whose companies (except for banks) have a comparative advantage when borrowing fixed-rate / floating-rate markets and explain to me why?
bump ...
google would help a whole lot with this.....
....lenders want highest rate possible, borrowers want lowest rate possible...
established company is going to have an advantage in fixed, but wants float to take advantage of possibly lower rates, is comfortable w/ that risk
new company is going to have to borrow in float (due to uncertainty), but wants fixed so it can manage its own finances better.
new company and established company could agree to do a fixed for float swap, transforming their liabilities into the desired ones while having the effect of also getting slightly lower rates than they normally would have otherwise.
However, this explanation doesn't take into account the different maturities of each. but I think thats beyond what you were looking for.
double post
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