Caps & Floors

Cap Agreement

A Cap Agreement is a derivative product which we offer to our customers who, due to market expectations and their type of commerce, seek to maintain potential interest liability below a certain threshold, while borrowing with a variable interest rate instead of borrowing at a fixed interest rate.

The Cap agreement is essentially a European type call option which coincides with the interest payment dates of the debt. In Cap agreements, an interest rate upper limit (cap) is determined by the parties in a manner which covers the interest payment periods of the debt. This rate is referred to as the strike price.

Cap transactions enable borrowing at variable interest rates instead of a fixed interest rate. They also allow protection from excessive increases in interest rates by purchasing a cap, as well as offering an advantage if interest rates decrease.

Floor Agreement

The Floor Agreement is a derivative product where if the variable interest rate, to be paid by our customers, falls below a certain threshold, we commit to pay the difference between this threshold and the cost.

Agreements in which both the cap and floor positions are used at the same time are referred to as collars.

Detailed information on the taxation of futures transactions is provided here.