The typical purchaser of an interest rate cap is a financial institution that is ____ affected by ____ interest rates.

Question

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An interest rate cap is a type of derivative contract that provides the purchaser with protection against rising interest rates. Financial institutions buy these caps to hedge against the risk of interest rates moving higher than a certain level, which would adversely affect them by increasing their costs of borrowing.

The Typical Purchaser of an Interest Rate Cap Is a Financial