Definition of collar

two-sided interest rate guaranty protecting both the borrower and lender. It consists of a floor and an interest rate cap. The lower end, the floor, assures the lender the rate will not fall below a fixed amount; the upper end, the cap, assures the borrower that the cost of credit will not rise above a stated level. The cap protects the borrower from interest rate risk if rates rise quickly. Often, the lender is willing to reduce the cost of an interest rate cap if the borrower accepts an interest rate floor as well. For example, a bank may agree, in exchange for an upfront fee, not to charge a rate below 9% or above 14% over the life of the loan.

index level at which a circuit breakers is tripped.

1. in new issue underwriting, the lowest rate acceptable to a buyer of bonds or the lowest price acceptable to the issuer. In an adjustable rate issue, refers to the maximum and minimum rates payable based on par value.
2. in acquisition terminology, feature of an agreement that protects the acquirer from having to put up additional stock or cash in the event the market value of the acquirer falls between the agreement and closing.
3. in options trading, selling an out of the money call and buying an in the money put, thus limiting both upside and downside.
4. index level at which a circuit breakers is triggered.