The agreement is referred to as an ________ when one party agrees to pay the other if the reference rate falls below a predetermined level.

Question

Quizplus · Accepted Answer

An interest rate floor is an agreement where one party agrees to pay the other if the reference interest rate falls below a predetermined level. This is often used in loan agreements or derivative contracts where the borrower wants to limit their exposure to falling interest rates. An interest rate cap is the opposite, where one party agrees to pay the other if the reference interest rate exceeds a predetermined level. Therefore, the correct answer is C) interest rate floor.

The Agreement Is Referred to as an ________ When One