Islamic Finance
Waqf Khas
September 13, 2022
Derivatives
Floor
September 13, 2022

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 collar swap is also referred to as a collared swap, a banded swap or a min-max swap.

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