Swap Transferring Risk With Participating Element - STRIPE

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.

BREAKING DOWN '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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RELATED FAQS
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    An absolute rate is easy to understand once you know the basics of an interest rate swap. An absolute rate is the fixed rate ... Read Answer >>
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    Find out how individual investors can speculate on interest rate movements through interest rate swaps by trading fixed rate ... Read Answer >>
  3. What are interest rate swaps on the OTC market?

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  5. Which of the following strategies is (are) appropriate? I. If a borrower has a fixed ...

    The correct answer is: a) (II) is incorrect because if an investor has floating rate assets and is expecting interest rates ... Read Answer >>
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