An option granted by the seller that gives the buyer the right to enter into an underlying interest rate swap transaction is ca lied:
A) a swap
B) a cap
C) a swaption
D) a collar

Question

Quizplus · Accepted Answer

A swaption is an option contract that gives the buyer the right, but not the obligation, to enter into an underlying interest rate swap transaction. A cap is an agreement that puts a limit on the interest rate of a floating-rate financial instrument or loans. A swap is a financial contract in which two parties agree to exchange one stream of cash flows for another. A collar is a strategy in which an investor holds a long position on an asset and simultaneously buys protective put options while selling call options on that same asset to offset some of the cost of the puts.

An Option Granted by the Seller That Gives the Buyer