So I was reading this: http://mises.org/daily/1765
And it says this:
Freddie Mac manages a portfolio valued in the hundreds of billions of dollars. Furthermore, the portfolio contains mortgages at different interest rates with different durations. The task of successfully hedging such a portfolio is monumental, and Freddie Mac is forced to engage in numerous interest rate swaps in an effort to attempt to protect itself from interest rate fluctuations.
I was just wondering what exactly is an interest rate swap and why exactly would fluctuations in the interest rate cause Freddie Mac to lose profit? I know this is simply stuff but I checked Wiki and still don’t get it.
I don’t suppose anyone is aware of any books either online of in print that would give an answer to these and other similar questions?
Wade thru this, and see if it answers your question:
http://www.lewrockwell.com/rozeff/rozeff92.html