Useful for hedging off the market risks with a contract whose value depends on the value of its underlying assets.
Where two parties agree to exchange periodic interest payments over a contracted period. The amount of interest exchanged is based on a predetermined principal amount, referred to as the notional amount. Interest is settled on a net basis on every payment date. May be used to hedge against future rise/fall in interest rates.
Gives you the right as a borrower of funds, to enter into an Interest Rate Swap at an agreed interest rate at a set date in the future.
A Cap option represents an insurance against the rate of interest on a floating rate index used to price a liability rising above a certain predetermined level (strike).
A Floor Option provides a certain payout should the floating rate index goes below the predetermined strike rate.