Swaps - Fixed Interest Rate for Floating Interest rate

One of these could be on your exam (65 or 66). The purpose of an interest rate swap is to reduce borrowing costs for each entity. The type of swap that I am going to describe is a plain vanilla interest rate swap, although there are other type of swaps like currency swaps.

One entity has a comparative advantage in fixed rate borrowing while another entity (may be called counter party) has a comparative advantage in a floating rate. These entities swap the cash flows from these rates and reduce their interest rate costs. I am really not sure what NASAA's attorneys know about swaps...