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Capped Swap


An interest rate swap which involves the exchange of fixed rate payments for “capped” floating rate payments. The floating rate payer may need to limit possible floating rate payments by putting a cap or ceiling on the floating rate he has to pay. However, an up-front fee or premium has to be paid by the floating rate payer willing to “cap his swap” to the fixed rate payer.

The capped swap is also known as a rate-capped swap.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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