Explain the fixed/floating decision.
A core Corporate Treasury interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Whether to pay fixed or floating interest on debt. Floating (e.g. EURIBOR+margin) benefits when rates fall but creates uncertainty. Fixed gives certainty but costs more if rates drop. Decision factors: rate outlook, cash-flow predictability needs, existing portfolio mix (target a balanced ratio, e.g. 50/50), covenant requirements. Treasury often swaps floating to fixed via interest-rate swaps to lock in costs without refinancing.
WHAT INTERVIEWERS LISTEN FOR
- ✓Rate outlook analysis
- ✓Cash-flow predictability needs
- ✓Existing portfolio mix
- ✓Use of interest-rate swaps
- ✓Covenant requirements
COMMON MISTAKES
- ✗Ignoring hedging instruments like swaps
- ✗Assuming fixed is always better
- ✗Neglecting covenant constraints
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