Interest rate cap
For whom it is intended:
- Particularly for legal entities
Definition:
An interest rate cap is a transaction whereby the seller of the option pays (once or periodically) floating amounts in a specified currency calculated from a notional amount in the same currency and from the difference between the floating interest rate and the limit interest rate (cap), if that difference is a positive value, i.e. the floating interest rate for the given interest period is higher than the limit interest rate. The buyer of the option pays the option premium to obtain this interest hedge.
Advantages of the product:
- Guarantees the buyer a maximum amount of interest expenses (cap)
- The buyer has the possibility to profit from a drop in interest rates.
- Flexibility of parameters – can easily be adjusted to the structure of the underlying instrument (loan)
- Can be sold at any time
Disadvantages of the product:
- The buyer must pay the option premium
Variations of the product:
- Interest rate collar – a combination of an interest rate cap and interest rate floor. It is usually offered as a zero cost strategy.
- Options strategies and combinations with an interest rate swap custom tailored according to current market conditions
Conditions for concluding a transaction:
- Master Agreement for Financial Transactions
- Limit for treasury operations
- Minimum volume of EUR 1,000,000
For more information, please contact your bank advisor.
Interest rate floor
For whom it is intended:
- Particularly for legal entitie
Definition:
An interest rate cap is a transaction whereby the seller of the option pays (once or periodically) floating amounts in a specified currency calculated from a notional amount in the same currency and from the difference between the floating interest rate and the limit interest rate (cap), if that difference is a positive value, i.e. the floating interest rate for the given interest period is higher than the limit interest rate. The buyer of the option pays the option premium to obtain this interest hedge.
Advantages of the product:
- Guarantees the buyer a maximum amount of interest expenses (cap)
- The buyer has the possibility to profit from a drop in interest rates.
- Flexibility of parameters – can easily be adjusted to the structure of the underlying instrument (loan)
- Can be sold at any time
Disadvantages of the product:
- The buyer must pay the option premium
Variations of the product:
- Interest rate collar – a combination of an interest rate cap and interest rate floor. It is usually offered as a zero cost strategy.
- Options strategies and combinations with an interest rate swap custom tailored according to current market conditions
Conditions of concluding a transaction:
- Master Agreement for Financial Transactions
- Limit for treasury operations
- Minimum volume of EUR 1,000,000
For more information, please contact your bank advisor.
