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  • June 23, 2022
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Auto Flexible Cap

An interest rate cap which limits the maximum level the interest rate could reach on each reset date when the reference rate crosses the cap rate. An investor using an auto flexible cap usually buys a number of caplets that help put a ceiling on interest rates to hedge against upward interest rate risk. The caplets act as a curb on rates, i.e., each time the reference rate exceeds the strike rate (the cap), caplets automatically reduce it back to the strike.


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