Business, Legal & Accounting Glossary
A Swap Transferring Risk with Participating Element or STRIPE is a financial instrument that combines an interest rate cap with interest rate swaps. The swap transferring risk with participating element was designed to protect borrowers and lenders from fluctuations in interest rates. When a swap transferring risk with participating element arrangement is in place, the interest on a loan is divided evenly between a capped floating rate and a fixed rate. The fixed-rate portion of a swap transferring risk with participating element gives borrowers some protection from rising rates, while the floating rate portion of a swap transferring risk with participating element gives them some benefit from falling rates. For lenders, the hedge effect is reversed; the fixed portion of a swap transferring risk with participating element protects them from falling rates, while the floating portion of a swap transferring risk with participating element lets them capture some additional profit from rising rates. Rather than charge a fee for a swap transferring risk with participating element agreement, lenders set the fixed-rate part of the loan a little higher than what they would normally charge for a conventional interest rate swap.
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This glossary post was last updated: 6th February, 2020 | 0 Views.