Definition of "Interest rate cap"

Cesar Guerra real estate agent

Written by

Cesar Guerraelite badge icon

Luxe Living Group

Upper limit on the maximum possible interest rate an insurance company will pay. If the market interest rates are below that maximum, the insurance company pays the market interest rate. In this way, the insurance company can hedge its interest rate exposure (risk that interest rates will rise or fall at some stipulated time), reflected by changes in the value of its assets on the balance sheets.

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