Banking
Legal Interest
March 6, 2021
Islamic Finance
Ujrat al-Mithl
March 8, 2021

An interest rate cap in which the successive caplets cover decreasing notional principal amounts. In other words, the notional principal amount declines over time as the principal is repaid (or amortized). The amortizing cap, like the amortizing swap, is primarily used to hedge loans the principal of which declines on a scheduled basis.

This cap is also instrumental to hedge investments that pay out principal over time.

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