A collar limits the amount of interest rate movement that can affect a borrower. A collar with a wide band has very little effect, cutting off only drastic changes to interest rates. As the bands of the collar narrow, the borrower is insulated from greater interest rate movements. At the extreme of a very narrow collar, the borrower is hardly affected at all by interest rate movements, and its payments against the loan are (nearly) the same as if the loan carried a fixed rate in the first place.
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