Interest rate swaps help nonfinancial firms minimize debt costs in global economy.
Interest rate swaps are commonly used by nonfinancial firms to manage economic exposure in a global economy with floating exchange rates. These swaps help firms minimize the cost of debt by choosing the right mix of short-term and long-term debt, depending on exchange rate shocks. When exchange rates are favorable, firms opt for short-term debt with fixed-for-floating swaps, while unfavorable rates lead to long-term debt with floating-for-fixed swaps. This strategy allows firms to adjust their debt costs based on interest rate expectations.