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An upper limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM). Also, an OTC derivatives contract consisting of a series of European interest rate call options; used to protect an issuer of floating-rate debt from interest rate increases. Each individual call option within the cap is called a caplet. Opposite of a floor.


1. Informal for market capitalization.

2. In a floating-rate note or an adjustable-rate mortgage (ARM), the highest possible interest rate. For example, if one has an adjustable-rate mortgage on a house, the interest rate fluctuates periodically. However, if the homeowner has a cap on the interest rate, there is a guarantee that it will never rise above a certain percent, no matter what the ARM formula would otherwise dictate. A cap is designed to protect the person or company making the interest payments. See also: Floor, Collar.


1. An upper limit on the interest rate to be paid on a floating-rate note.


A cap is a ceiling, or the highest level to which something can go.

For example, an interest rate cap limits the amount by which an interest rate can be increased over a specific period of time. A typical cap on an adjustable rate mortgage (ARM) limits interest rate increases to two percentage points annually and six percentage points over the term of the loan.

In a different example, the cap on your annual contribution to an individual retirement account (IRA) is $4,000 for 2006 and 2007 and $5,000 in 2008, provided you have earned at least that much. If you're 50 or older, you can make an additional catch-up contribution of $1,000 each year.




A ceiling on the adjustments that can be made in the payments or interest rate of an adjustable-rate loan.


Same as Float-Down.

References in periodicals archive ?
She wore no jewelry, only a dainty Dutch cap modeled after one she had found in Holland during their 1923 honeymoon.
If you're having a Dutch cap fitted you don't want the nurse saying, 'I know you, don't I?
Van Wolfswinkel (pictured right) earned his second senior Dutch cap against Indonesia in June, and is confident he can make a quick transition from the Portuguese league to the hustle-and-bustle of the English top flight.
Winning the Capital One Cup and doing so well with Swansea as well as winning a Dutch cap is all a massive bonus for me.
Global Banking News-March 22, 2013--ING says Dutch cap on banker pay creating gap with peers(C)2013 ENPublishing - http://www.
Saxton had been set to make a trip to the European Tour's qualifying school ahead of his step-up to the pro ranks But with his Turnberry win securing tee-times for next month's Open at Royal Birkdale and the 2009Masters at Augusta, the Dutch cap is more than happy to delay his switch.
The Dutch cap may have a haircut from the 80s, but he's also a black belt in judo.