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Derivatives

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  • March 27, 2021
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Collared Swap

An interest rate swap in which an embedded collar is placed on the floating rate payment. In other words, the floating rate leg has an upper and lower limit within which it is bound to fluctuate. The purchase of the cap is financed by the sale of the floor, taking the transaction cost of establishing the upper and lower limits into zero.

The collared swap is also referred to as a collar swap or a floor/ ceiling swap.


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