A modified version of the barrier cap. It is an interest rate cap that comes in the form of an up-and-out cap or an up-and-in cap. It deactivates (activates) when the reference rate reaches or exceeds the barrier and the original cap is replaced by another cap with a higher strike price. In other words, this cap has a lower strike, an upper strike and a trigger. Insofar as the underlying rate is below the trigger, the cap holder obtains protection at the lower strike. For periods when the underlying rate is at or above the trigger, the cap holder receives protection at the upper strike level.

The following example illustrates how an N-cap works. An investor buys an N-cap which combines a 5.5% knockout cap and a 7% knock-in cap. Both caps are subject to an 8.5% trigger rate. That means, the investor can cap his cost of funds at 5.5% in addition to the premium paid for the cap unless rates rise to 8.5%. At this rate, the knockout and knock-in features come into life and the cost of funds readjusts upward.

It is also referred to as an indexed strike cap or a dual strike cap.