Hedging Series: “Interest Rate Swap Vs. Cap” [Chapter 8]
How do you know if the SWAP or a CAP is the right hedging structure for you? If you want a known fixed rate or you think your asset is going to be outstanding for some time and you want tight interest rate protection, the swap may be the best structure. However, if you think rates may be low for some time and you want disaster protection, and you want flexibility in case of a breakage, then the interest rate cap may be the right structure. Just remember with the cap, you will be required to pay an up-front cash premium.
This is the EIGHTH video — focusing on, “Interest Rate Swap Vs. Cap” — in a series of eight episodes on the topic of Hedging presented by Jillian Mariutti.