| Summary: | The topic of discussion is the use of Interest Rate Derivatives by non-financial firms in the
UK. The data of the non-financial firms is gathered from the information available in the
financial statements. The objective of the study was to analyse how firms use floating rate
debts or fixed rate debts to hedge their interest rate risk. It is found that bank debts for nonfinancial
firms is set on a floating rate, firms with higher cash holdings choose to have more
floating rate debt, firms with high leverage prefer to have fixed rate debts, firms manage the
volatility in their earnings before interest and tax (EBIT) using floating rate debts and firms
with credit ratings usually desire for a fixed rate debt. The findings for these independent
variables is found to be consistent with existing literature. However, tests for the effects of
firm size, short-term debt and long-term debts on the floating rate debt were futile since
they did not yield statistically significant results.
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