Your source for free quality articles. Add free content to your site or ezine and get more traffic! Article Authors/Writers: Submit your free articles for reprint and get credit and exposure. Free Content Articles has an extensive collection of articles on various subjects. Just click on the appropriate category to read the articles or copy them FREE for your use. Original, legal wealth of free website content is updated daily. Subscribe to the newsletter digest and receive a daily listing of all new posted articles for free reprint. Be the first to know!
Published:  2012-10-11 Views:  634
Author:  Adolfo
Published in:  Management
There are a lot of businesses that can find themselves in the situation of being vulnerable to flexible interest rates. A tool that can protect businesses from these concerns is called the interest rate hedge. The most common misconception about a hedge is that it is a loan, but actually it is a separate contract that is used to manage interest rate exposure and limit uncertainty. They are actually act like an insurance policy to protect you from adverse interest rate movements. Different types of hedges that you may consider when working with your bank.

Knowing the interest rate cap. It puts a cap on a floating interest rate to prevent it from rising higher than a certain point when the customers would pay upfront. The succeeding type is an interest rate floor. This is a separate contract where a limit is put on the lower end of a customers floating rate of their loan. Another thing, it also involves the customer receiving a fee for giving up the advantage of falling interest rates. When a lower cap and an upper cap are put on the interest rate of the loan, this is known as the interest rate collar. The fee for the upper cap is often equal to the benefit of the lower cap, that is why these types are considered costless. The interest rate swap is the forth type of interest hedge. When the customer can swap the variable interest rate on their loan for a fixed one for a period of time. Since the fee is built into the loan, there is no upfront cost. The last type of interest rate hedge is a forward. The last hedge would mean that a hedge is opened on a certain day with a starting date sometime in the future.

In fact, there are a lot advantages and benefits to using an interest rate hedge. The first is the flexibility it allows you. Since these are considered separate contracts, they allow you to deal with rate issues completely separate of your financing decision. Another benefit is the speed of which they can be implemented. As soon as they have their decision, the hedge can be effective within a few. Simplicity is their third benefit. Modifying anything on an existing loan will not be necessary with a hedge. The termination benefit is the final benefit of using a hedge. Hedge repayments are based on current market trends and situations, so the cost of a hedge may decrease as interest rates fall.

Utilizing these tools can be an effective way to avoid uncertainty about falling and rising interest rates on your business loan. It may be a good idea to consult a third party to help you make the best final decision for you because you are a customer of the bank you decide to borrow from.

If you are looking for a company to help you make an educated decision on an interest rate hedge, consider calling Derivatives Advisory Group. They are professionals who are highly educated and experienced in the field.
There are zero comments yet, why not be the first?

You must be logged in to post a comment.

Please log in or register to comment or reply to a comment.


Cisco CCNA Certification A Preferable Choice For Career In Networking
Cisco CCNA Certification A Preferable Choice For Career In Networking
CompTIA Security+ Certification - Open The Doors Of Career Opportunities
CompTIA Security+ Certification - Open The Doors Of Career Opportunities
Get Lucrative Career And Higher Salary With EC-Council CEH V9 Certification
Get Lucrative Career And Higher Salary With EC-Council CEH V9 Certification
Overcome Your Anxiety And Fear In Real Estate
Overcome Your Anxiety And Fear In Real Estate
Comptia Network+ Certification For A Brilliant Career In Networking Field
Comptia Network+ Certification For A Brilliant Career In Networking Field
The Worst Diet Mistakes For Hair And Nails
The Worst Diet Mistakes For Hair And Nails
Improving Customer Satisfaction In Hotels
Improving Customer Satisfaction In Hotels
Select A Better Home Colour For A New Home
Select A Better Home Colour For A New Home
Home Buyers Prefer A New Home Rather Than An Old One
Home Buyers Prefer A New Home Rather Than An Old One
Real Estate: Things You Should Know To Negotiate The Best Deal
Real Estate: Things You Should Know To Negotiate The Best Deal
Choosing A B-School
Choosing A B-School