Interest Rate Cap Floor

A borrower can be protected from an interest rate rise but still benfit from a fall using an interest rate cap.
An investor can benefit from an interest rate rise but still be protected from a rise using an interest rate floor.



Cap

The buyer receives payment at the end of each period when the interest rate exceeds the strike price



Floor

The buyer receives payment at the end of each period when the interest rate is lower than the strike price




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