These include:
Interest rate swaps
A swap is an agreement to 'swap' a floating interest rate for fixed interest rate, or vice versa based on a specified principal amount.
Interest rate swaps are used to hedge longer-term interest rate exposure, usually beyond one year.
Interest rate swaptions
A swaption gives you the right, but not the obligation, to enter into a pre-agreed swap contract on expiry date.
They provide the certainty of a known worst-case interest rate from drawdown/fixed rate expiry date.
Allows both known and potential interest rate risk to be covered, i.e. tender, conditional farm purchase.
Interest rate collars
Set a minimum and maximum for your loan's floating interest rate and choose how long you want to keep it in place. You can end it earlier, but you may have to pay a break cost based on market revaluation.
Lets you take some advantage of falling interest rates while retaining a degree of protection against rising rates.
Interest rate caps
Set a maximum for your loan's floating interest rate and choose how long you want it to keep it in place.
Because your loan is on a floating rate, lump-sum and early repayments can be made without penalty.
If the floating interest rate decreases, so will the rate for your loan - no matter how far it falls. Plus, you also have the certainty of knowing the worst-case interest rate.
