A bank can purchase a cap on interest rates by

Question

Quizplus · Accepted Answer

A put option gives the buyer the right, but not the obligation, to sell an underlying asset at a specified price on or before a certain date. In this case, the bank can purchase a put option on a financial futures contract to cap interest rates. If interest rates rise, the bank can exercise the put option and sell the futures contract at the specified price, which will lock in a lower interest rate for the bank.

A Bank Can Purchase a Cap on Interest Rates by