Interest rate cover: via COLLAR
An interest-rate COLLAR is an interest-rate derivatives operation by which a company buys the right to compensation from Caja Navarra for future rises in interest rates –normally Euribor- over a predefined level (strike) and, at the same time, the company sells CAN a FLOOR by which it undertakes to compensate the Caja Navarra when future interest rates fall beneath a specific level.
By buying a COLLAR, the company lowers or even cancels out the cost of a CAP in exchange for not benefiting from interest rates beneath the Floor.
A zero-cost COLLAR is different from a SWAP in that it establishes a financing range rather than a financing cost.
The cost of a COLLAR depends on:
- The absolute level of interest rates
- Plazo de cobertura
- Limits of the financing range
- Volatility of interest rates, etc.
The commercial contracts which cater for operations of this kind are:
- The “Contrato Marco de Operaciones Financieras” (CMOF – Framework Contract for Financial Operations) of the Asociación Española de Banca (AEB – Spanish Banking Association) signed by both parties,
- Confirmation of the operation sent to the customer by Caja Navarra.
The Caja Navarra business office can provide you with full information and advice on how to contract these operations.
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