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Derivatives




Floored Swap


An interest rate swap in which a floor is placed under the floating rate leg to a predetermined level. The value of a floored swap corresponds to an option premium. Often the fixed rate of the swap is adjusted to account for the premium and to put the swap back to par. Individual investors usually use floored swaps, and similarly capped swaps, to reduce or limit interest rate payments while investment banks take advantage of them to reduce exposure.



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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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