Definition of "Interest rate cap"

Matthew Cheplicki real estate agent
Matthew Cheplicki, Real Estate Agent Willow Realty 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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