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Suppose a firm has sales that are highly correlated with economic conditions. Short-term interest rates are also pro-cyclical. However, the firm wants to avoid the possibility that lenders may refuse to renew loan agreements if circumstances for the firm change for the worse (i.e., firm want to lock in the availability of credit). The firm will likely:

A-Issue LT debt and then enter into an IR swap in which it pays floating and receives fixed.

B-Issue LT debt and then enter into an IR swap in which it pays fixed and receives floating.

C-Issue ST debt and then enter into an IR swap in which it pays floating and receives fixed.

D-Issue ST debt and then enter into an IR swap in which it pays fixed and receives floating.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92352411

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