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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


1. An upper limit on the interest rate to be paid on a floating-rate note.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.


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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.


Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005


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

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.


Same as Float-Down.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
References in periodicals archive ?
The problem was his knee cap but the operation went well.''
The strap is placed about two to three inches above the patella (knee cap), as shown in the photos.
I was an 85-year-old lady, unwell and unable to walk far, needing a new knee cap and not feeling very confident of success - but I had no need to worry.
DANIEL AGGER insists he's happy to keep playing with a minor fracture in his knee cap after the Liverpool defender initially feared he would sidelined for the rest of the year.
BARTON replies: Patella luxation (displacement of the knee cap) is most common in small breed dogs.
I believe the pilot ripped open his knee cap. He was very lucky to survive."
David Murphy, who broke his knee cap in April, has been held back.
The Killie coach said: "Garry has a wee crack in his patella, which is the knee cap.
Giteau (pictured) sustained a fracture to his knee cap during the Wallabies' loss to England at Twickenham and was forced to miss the last two games against Ireland and Wales.
"His knee cap had popped out and so we rushed him off the A&E at North Tees.
Studley could have hot-shot Craig Pountney back in action before Christmas after further checks revealed ligament damage rather than a broken knee cap.
Your middle finger will be over the centre of the knee cap.