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a collar is a combination of buying a cap and selling a floor, or buying a floor and selling a cap.
a company wishing to fix a maximum interest rate for a variable rate loan and at the some time wanting some flexibility fo benefit from more favorable interest rates when they occru, could transact a clooar with a bank in which it buys a cap with a strike price at the required maximum limit, and simulaneously sells a floor to the bank at a lower strike price, for the same maturity and notional pricipal.
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