Setting CAP rate as the upper limit

Installation of ATS-rate as the upper limit or "ceiling" of raising the effective rate of borrowing, does not preclude benefit from reduced rates. If market rates are lower CAP rate, the loan interest paid on current market rates. Consequently, the percentage of CAP insures the owner of an increase in market rates, but you can take advantage of reduced rates. FLOOR - an agreement that entitles the buyer to receive compensation in the event of a decrease in market rates below pre-specified rate of interest based on a certain amount for a certain period in the future. FLOOR agreement designed to protect investors from the likely reduction of his income. Establishing the minimum bid for the assets of the investor in terms of floating rates to protect against lost revenue due to adverse movements in market interest rates, but also allows you to benefit from a general increase in rates. FLOOR agreement insures the buyer's interest rate risk, which assumes the option writer in exchange for an option premium. The closer the rate fixed in the agreement FLOOR, to current market rates, the higher the value of the option and the client will pay a big bonus when buying FLOOR, to protect their assets. In general, the mechanism of the agreement FLOOR is the same as the transaction CAP. The deal could be a real or notional payment of the difference in rates. If the conclusions of the option agreement is accompanied by the actual operation of investment funds, as well as in other derivative instruments, the investment agreement and the actual transaction FLOOR treated as separate independent operations. Interest on invested funds are awarded on a routine basis at market current rates. However according to the contract seller pays FLOOR difference in rates, if market rates were below the FLOOR, stated in the agreement. Category: Management Operations Commercial Bank | Tags: commission expenses