Interest Rate Swaps. Interest rate swaps are contracts in which two parties agree to exchange cash flows (e.g., one party agrees to make fixed payments and the other party agrees to make payments based on a floating rate of interest).
Interest Rate Caps. Interest rate caps are contracts in which an issuer of floating rate debt purchases the right to receive payments from a counterparty if interest rates exceed a predetermined rate.
Interest Rate Floors. Interest rate floors are contracts in which an issuer of floating rate debt sells its obligation to make payments to a counterparty if interest rates fall below a predetermined rate.
Interest Rate Collars. Interest rate collars combine a cap and a floor. An issuer of floating rate debt exchanges the potential benefit from low interest rates for the protection from high interest rates.
Forward Contracts. Forward contracts allow an issuer to “lock-in” the advantage of low interest rates in a rising interest rate environment by agreeing now to issue bonds for delivery in the future.
Option Contracts. Option contracts allow an issuer to sell an option to buy certain bonds to be issued in the future in exchange for an up-front option premium.
Guaranteed Investment Contracts. Issuers may invest the proceeds from their bonds in guaranteed investment contracts and thereby receive a predetermined fixed rate of return, together with flexibility in both deposits and withdrawals.
Collateralized Repurchase Agreements. Issuers may invest the proceeds from their bonds in collateralized repurchase agreements and thereby receive a predetermined fixed rate of return secured by U.S. Treasury obligations.
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