1: Interest Rate Caps: A Good Option

Interest Rate Caps: Why they are often better than Swaps: Caps should always be seriously considered when hedging variable interest rate risk. For the last twenty years, borrowers who have hedged using caps experienced much lower interest rate costs than those using swaps, yet swaps are still more popular. This white paper discusses the market forces behind this strange phenomenon: swaps are more profitable for banks, and borrowers hate up-front fees.