Caps Floor Collars Interest Rate Swaps
Caps, Floor, Collars, and Interest Rate Swaps are financial instruments used to manage interest rate risk. Caps are agreements that set a maximum interest rate that a borrower will pay on a loan. Floors, on the other hand, set a minimum interest rate that a lender will receive on an investment. Collars combine elements of both caps and floors by establishing a range within which interest rates will fluctuate. Interest rate swaps involve two parties exchanging interest rate payments, allowing them to manage their exposure to interest rate changes. This category encompasses various strategies and products used in the financial markets to hedge against interest rate fluctuations.