CAPS AND OPTIONS THE DANGEROUS NEW PROTECTION RACKET
It's too late now to stop them and ask what they think
they're doing. The latest fad in the market is up and running.
The new product is glistening on every shelf: the interest-rate cap.
The investment bank superbrains have grown bored with the monotony
of swaps which they invented as long as five years ago and which have
now become a mere commodity. Goaded also by fears of redundancy or a
cutback in their remunerations they had to come up with something else.
The demand for caps is fed by fears of volatility. US dollar
interest rates are on a downward trend, but what if they went up? Are
you protected? Swaps can give you that protection, if you swap into
fixed-rate debt. But with a swap you can't take advantage of
falling interest rates. The cap gives treasurers...
