Swap Transferring Risk With Participating Element - STRIPE

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DEFINITION of 'Swap Transferring Risk With Participating Element - STRIPE'

A specific type of hedging technique. STRIPEs combine interest rate swaps and interest rate caps in order to protect the borrower from changes in interest rates. Under this arrangement, the balance of a loan is split between a fixed rate and a floating rate with a cap.

INVESTOPEDIA EXPLAINS 'Swap Transferring Risk With Participating Element - STRIPE'

STRIPEs provide a partial hedge to interest rate changes in either direction. If rates increase, the lender will profit from the portion of the loan covered by the cap. If they fall, then the lender, who would take a fixed-rate receiver position, would also be protected against a loss.

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