Interest Rate Swap Story

📦 Step 1: SalmonCo’s Dilemma

SalmonCo AS is a fish exporter based in Bergen, Norway. They sell their salmon to U.S. buyers and receive payments in U.S. dollars (USD).

But their bank loan is in Norwegian krone (NOK) — and it’s a floating-rate loan.

Now Norway is expecting higher interest rates soon. That means SalmonCo could end up paying more in interest just to service their debt.

SalmonCo would feel much safer if their loan were in USD at a fixed rate, matching their income and giving them stability.

🏬 Step 2: SeaFoods Inc.’s Frustration

SeaFoods Inc. is a U.S.-based importer of fresh Norwegian seafood. They pay SalmonCo in NOK to import fish every month.

However, SeaFoods has a fixed-rate loan in USD. But guess what? NOK interest rates might drop soon, and they feel stuck paying a higher fixed cost in USD.

SeaFoods wishes they could borrow in floating NOK instead — which would match their expenses and possibly lower their borrowing cost.

⚠️ Step 3: Mismatch

Look at the mismatch:

✅ SalmonCo wants fixed USD loan, but has floating NOK.
✅ SeaFoods wants floating NOK loan, but has fixed USD.

Taking new loans in other countries is expensive and risky. Is there a smarter solution?

🔁 Step 4: The Interest Rate Swap

🧠 The Smart Move:

SalmonCo and SeaFoods enter into a swap agreement:

💵 SalmonCo agrees to pay fixed interest in USD (to SeaFoods)
💱 SeaFoods agrees to pay floating interest in NOK (to SalmonCo)

🎯 This means:

✅ SalmonCo now effectively has a fixed USD loan — stable and matched with revenue
✅ SeaFoods now effectively has a floating NOK loan — flexible and tied to payments

✅ Both reduce risk without needing to borrow abroad. It's a win-win!

🐟 Interest Rate Swap Story: Norway Meets USA 🌍

📦 Step 1: SalmonCo’s Dilemma

🏬 Step 2: SeaFoods Inc.’s Frustration

⚠️ Step 3: Mismatch

🔁 Step 4: The Interest Rate Swap