cap and collar

Meanings

1. 1nouncountablebusinessfinance

   An arrangement that sets both an upper and a lower limit on something such as an interest rate or a price.

   Grammar: Used as a singular countable phrase, often with 'a' or 'the': The bank agreed to a cap and collar on the loan.

   Patterns

   • a cap and collar on something
   • put a cap and collar on something

   The mortgage came with a cap and collar, so the rate could not rise above 6% or fall below 3%.

   Investors liked the cap and collar because it limited both their potential gains and losses.

   The government introduced a cap and collar on energy prices to protect households.

2. 2nouncountablefinancespecialist

   A financial contract in which one party buys a cap and sells a collar (or the other way around) to limit interest rate movements.

   Grammar: Often used in plural: caps and collars are common hedging tools.

   Patterns

   • buy a cap and collar
   • use a cap and collar

   The company used a cap and collar to hedge its exposure to floating interest rates.

   Traders can structure a cap and collar to reduce the cost of an option position.

   She explained how a cap and collar works in the derivatives market.

Word forms

Common combinations

a cap and collar on interest rates

The central bank imposed a cap and collar on interest rates to stabilize the economy.

introduce a cap and collar

Lawmakers voted to introduce a cap and collar on rent increases.

remove a cap and collar

The new government decided to remove the cap and collar on fuel prices.

cap and collar agreement

They signed a cap and collar agreement with their lender.

Synonyms and how they differ

collar

A collar alone often sets only a lower limit or a range; a cap and collar explicitly includes both an upper and a lower limit.

band

Band is a more general word for a range with upper and lower limits, often used for exchange rates; cap and collar is more specific to finance and insurance.

Word family

cap noun

An upper limit on an amount, such as a cap on spending.

collar noun

A lower limit or a band that restricts something, especially in finance.

Commonly confused: cap and collar or cap and trade?

Practice

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