The writer of a ____ agreement makes settlement payments when LIBOR is less than the striking rate of the agreement.
A) Swap
B) Cap
C) Floor
D) Collar
E) None of the above

Question

Quizplus · Accepted Answer

A floor agreement is a derivative contract that allows the holder to receive payments when there's a fall in interest rates. In this situation, the writer of the agreement is obligated to make settlement payments when the London Interbank Offered Rate (LIBOR) is lower than the striking rate of the agreement. Therefore, the correct choice is C.

The Writer of a ____ Agreement Makes Settlement Payments When