It enables a company with floating rate debt to limit the risk associated with upward moves in the interest rate while taking full advantage of downward moves. It can be purchased from a bank and amounts to a contract whereby the seller agrees to reimburse the buyer from a chosen reference rate exceed the cap’s interest rate level. To compensate the seller for taking on the interest rate risk, the buyer makes a premium payment. The cap contract determines the maturity, the interest rate level, the reference floating rate, the reset period and the notional principal amount.