Why borrow money at higher interest rates than the market can offer?
If you plan to take up a revolving loan in the months ahead and you fear that short-term interest rates may rise in the meantime, it would be advisable to fix a rate now. This is precisely what a forward-rate agreement achieves. It establishes a fixed rate in advance and keeps the danger of possible rising trends at bay.
If you are going to take up a revolving loan in the months ahead and you are unsure about the evolution of short-term interest rates you can purchase a cap option. As the buyer of the option, you’re entitled to a maximum predetermined rate, no matter how high rates move prior to the day you engage your loan. If market rates are lower at the time the investment takes place, you remain free not to exercise your option and to choose the conditions prevailing on the market instead. Through this mechanism, we offer you total protection against possible interest-rate rises and the unrestricted opportunity to benefit from any favourable bearish movements in the market.
Take advantage of lower fixed or floating rates
An interest-rate swap (IRS) is an agreement between two parties to exchange interest-rate exposures during a specific period for a specific amount, defined in a contract. Interest-rate swaps allow you to alter the financing charges of a loan at a moment you choose, by decoupling the interest charges from the loan itself. The principle is identical, whether you opt for a floating or a fixed rate of interest.
A floating-to-fixed swap can increase the certainty of your future obligations, whereas a fixed-to-floating swap can save you money if interest rates decline. As they require little capital, interest-rate swaps allow you to speculate on interest-rate movements.