Interest Rate Swap Valuation

David Ricardo's law of comparative advantage says that everyone has a comparative advantage in the manufacture of a particular product. Likewise, firms can have a comparative advantage in borrowing. Some firms may be able to access fixed rate funding over floating rate despite their preference being for floating rate loans. We see how these firms can swap their cash flows such that they can replicate the cash flow structure they desire. We see how such arrangements can be set-up and how they can be unwound if necessary.