James Arthur is a customer of a bank who has taken a floating rate loan...

An interest rate cap is a derivative contract that protects the buyer from rising interest rates. It sets a maximum limit on the interest rate that the borrower will have to pay on a floating rate loan. If the floating rate exceeds the cap rate, the seller of the cap pays the difference. This instrument is ideal for James Arthur, who is concerned about potential rises in interest rates, as it limits the maximum interest payment without affecting the benefits of lower rates.