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Derivatives

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Ratchet Swap

A interest rate swap (fixed rate for floating rate or fixed-for-floating swap) whereby the fixed rate leg can be modified on a descending (or ascending) basis. Small downward (or similarly upward) increments are usually made over reset periods in case the floating rate falls (or increases) by amounts exceeding what the counterparties initially agreed upon. The ratchet swap is a combination of a periodic interest rate cap and a swap.


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