Interest Rate Hedging 

Hedging is a means of reducing risk. Hedging involves coming to an agreement with another party who is prepared to take on the risk that you would otherwise bear. The other party may be willing to take on that risk because he would otherwise bear an opposing risk which may be “matched” with your risk; alternatively, the other party may be a spectator who is willing to bear the risk in return for the prospect of making profit. In the case of interest rates, a company with variable rate loans clearly faces the risk that the interest rate would increase in the future as a result of changing market conditions which cannot be predicted.
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