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I see. So if you pay cash now you are vulnerable to interest rate swings. Whereas if you use leverage to spread the term of your investment out, you can average
by jackcosgrove 11y ago
I see. So if you pay cash now you are vulnerable to interest rate swings. Whereas if you use leverage to spread the term of your investment out, you can average the interest rate across the business cycle and achieve more predictable behavior. Is that correct?
- lordnacho 11y agoI think point of the example was not to say that you could use leverage. You're borrowing the same amount that you're lending. The idea of the interest rate swap is simply that some entities prefer to lock in a rate, others prefer to have it float. So they swap those risks.