Now assume that the rate on the floating rate loan falls to 2 which is below the interest rate floor contract level.
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Interest rate floors are utilized in derivative.
But because inventories are so immense the car business is very sensitive to both floor plan interest rates and the tax treatment of interest expenses.
Similarly an interest rate floor is a derivative contract in which the buyer receives payments at the end.
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An interest rate cap is a type of interest rate derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price an example of a cap would be an agreement to receive a payment for each month the libor rate exceeds 2 5.
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While the company is making less on the loan the interest rate floor.
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An interest rate floor is an agreed upon rate in the lower range of rates associated with a floating rate loan product.