Translation and analysis of words by artificial intelligence
On this page you can get a detailed analysis of a word or phrase, produced by the best artificial intelligence technology to date:
- how the word is used
- frequency of use
- it is used more often in oral or written speech
- word translation options
- usage examples (several phrases with translation)
- etymology
pure interest rate - translation to English
Definition
Wikipedia
An interest rate cap is a type of interest rate derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price. An example of a cap would be an agreement to receive a payment for each month the LIBOR rate exceeds 2.5%.
Similarly an interest rate floor is a derivative contract in which the buyer receives payments at the end of each period in which the interest rate is below the agreed strike price.
Caps and floors can be used to hedge against interest rate fluctuations. For example, a borrower who is paying the LIBOR rate on a loan can protect himself against a rise in rates by buying a cap at 2.5%. If the interest rate exceeds 2.5% in a given period the payment received from the derivative can be used to help make the interest payment for that period, thus the interest payments are effectively "capped" at 2.5% from the borrowers' point of view.
