What type of hedge is this- cash flow or fair value

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Question - On January 2, 2018, Sloan Company issued a 5-year, $12,000,000 note at LIBOR with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 6.8%.

Sloan Company decides it prefers fixed-rate financing and wants to lock in a rate of 7%. As a result, Sloan enters into an interest rate swap to pay 7% fixed and receive LIBOR based on $12 million. The variable rate is reset to 7.4% on January 2, 2019.

What type of hedge is this- cash flow or fair value? Would you please explain to me if it is a cash flow or fair value hedge and why? Thank you.

Reference no: EM132075757

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