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HOME       CONTACT       PERSONNEL       COMPANY       LINKS       NEWS           Interest Rate Collar An Interest Rate Collar is a combination of an interest rate cap and an interest rate floor that locks in a range of interest costs for a floating rate borrowing. The Issuer simultaneously purchases an interest rate cap and sells an interest rate floor to a derivatives provider. The collar provides protection from increases in rates above the cap strike, but eliminates any benefits from rates falling below the floor strike. The Issuer selects the cap and floor strikes. Then for each period, if the market rate of the floating index exceeds the strike rate of the cap, the Issuer receives the difference from the Provider on each settlement date. Conversely, if the strike rate of the floor exceeds the market rate of the floating index, the Issuer pays the difference to the Provider. Collars can be structured as “costless” transactions so that the cost of buying the cap equals the cost of selling the floor, thus resulting in no upfront or ongoing costs to the Issuer.