Interest Rate Derivatives
Protection against future trends
Within the scope of Treasury Management, Interest Rate Derivatives are a common financial instrument used to protect companies against major fluctuations in market interest rates.
Managing interest rate risk is a key concern for all successful corporate and financial institutions, and derivatives come in various forms such as Swaps, Caps or Collars.
With our professional team and detailed understanding of the interest rate markets, CIBC is able to help you to:
- Identify and manage risk exposures and risk management solutions
- Mitigate, and where possible negate, short-term risks and achieve long-term strategic value and stability
CIBC offers a full range of interest rate derivative products tailored to your specific needs. These include the following:
Interest Rate SwapAn Interest Rate swap is a very common Interest Rate Derivative, and a good way for businesses to manage their debt. As its name suggests, an Interest Rate Swap occurs between two parties ‘swapping’ fixed and floating interest rates to mutual benefit. One operates at a fixed rate and the other on a floating rate in order to net payments and reduce risk. An Interest Rate Swap can be beneficial when a company wants to receive payments with a floating interest rate (to take advantage of market fluctuation), while another prefers to hedge its risk by making fixed payments. The length and term of the swap is agreed upon in advance. |
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Interest Rate CapAn Interest Rate Cap is the agreed upon limit to which an interest rate may be increased. It provides a level of protection to a company with a floating rate loan. The cap acts as a ceiling, indicating the highest rate which you will pay in the event of an upward fluctuation in the market. |
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Interest Rate CollarAn Interest Rate Collar protects borrowers against fluctuations-both up and down. It sets both a Cap on increasing interest rates, as well as a floor on declining interest rates. It’s an investment strategy that will hedge your exposure to interest rate fluctuations. |
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