Interest rate option (CAP, FLOOR, COLLAR)


It is a kind of option related to the change of interest rates, in which the buyer obtains the right to borrow or lend certain sum of currency at conventional interest rate prior to or on the maturity date after paying some option fees and the seller may receive the option fees and shall take relevant responsibility. Typical products include CAP, FLOOR and COLLAR.


1.Limited cost: Fix limitless risk of exchange rate with limited cost (option fee); 2.Individualized product: There are many types of currency option products available, and it may be specifically designed according to requirements of the customer. 3.High flexibility: It is far more flexible than spot forward exchange transactions. The executive power lies in the hand of the customer who may determine whether to exercise that power upon maturity according to the market conditions of that time: Exercise that option for favorable market prices. Execute not option and make transactions at market prices if it is unfavorable for the customer.

Conditions for application

Customers who meet the stipulations of related policies

Interest rate swap price

The trade price shall be subject to the trade price at each branch of CGB.


Provided that Company A has a LIBOR-pegged floating debt of USD 10 million with the term of 6 months, Company A wishes to benefit from the fall of market interest rate and evade the cost increase out of rising of market interest rate, from the view of the company. Therefore the company may choose interest rate option and buy 6-month CAP with the agreed interest rate of 3% from the bank. 6 months later, if LIBOR rises to 4%, higher than the agreed interest rate, Company A will choose to exercise option. Therefore, the bank, as the seller of the option, shall pay USD 100,000 (1,000 × (4%-3%)) for the company as the difference between the market interest rate and the conventional interest rate, and Company A, as the buyer of such option, effectively lock its debt cost with correct judgment.

If LIBOR decreases to less than 3%, Company A may waive the exercise of such option and pay the debt interest at relatively low market interest rate, merely losing the option fees.

Service Channel

Business Outlets

Kind Reminders

Capital transaction credit line by CGB is required for the transaction of this service. For application of capital transaction credit line, please contact relationship manger of local branch.

Related Financial Instruments

FCY deposit interest rate

Inquiry at business outlets