thecfawannabe

You're definitely long the bond. "Purchase cap and sell floor to hedge a floating rate liability." simply means that to hedge exposure where you are paying rates you would enter into a Interest Rate Collar. Essentially, all the Interest Rate Collar is doing is creating a "synthetic" fixed-rate position. The collar creates a band within which the effective interest rate recieved (or paid) flucuates, basically the fluctuation here is zero. Hope that helps!