An interest rate cap that is paid in a currency different from the one denominating the reference rate. This structure allows investors to take advantage of having access to foreign markets for funding without being exposed to foreign exchange risk.
The quanto cap, technically speaking, is a stand-alone option or a series of options whose payout is based on a “foreign” floating reference rate exceeding an absolute strike rate or spread with respect to the “domestic” floating rate. The payout of a quanto cap is made in arrears on a money market basis, like a typical in-arrears cap, but is, however, denominated in the local currency.
