A cap and a floor can be viewed simply as:
A) A package of forwards.
B) A package of options.
C) A package of futures.
D) A complex contract.
E) None of the above.

Question

Quizplus · Accepted Answer

A cap and a floor are financial instruments used to hedge against interest rate fluctuations. They can be viewed as a package of options because a cap consists of a series of call options on interest rates (caps on interest rate increases), and a floor consists of a series of put options on interest rates (floors on interest rate decreases).

A Cap and a Floor Can Be Viewed Simply As