Which type of contract is unique in that it protects the owner against unfavorable movements in the prices or rates while allowing the owner to benefit from favorable movements?
A) Interest rate swap
B) Forward contract
C) Futures contract
D) Option

Question

Quizplus · Accepted Answer

Options are the only type of contract that allow the owner to benefit from favorable movements while protecting against unfavorable movements. With a call option, the owner has the right to buy an asset at a predetermined price, so if the price of the asset increases, the owner can exercise the option and buy the asset at the lower predetermined price. With a put option, the owner has the right to sell an asset at a predetermined price, so if the price of the asset decreases, the owner can exercise the option and sell the asset at the higher predetermined price.

Which Type of Contract Is Unique in That It Protects