A hedging tool that provides "one-sided" insurance against interest rate risk is the interest rate option,which,like financial futures contracts,obligates the parties to the contract to either deliver or take delivery of securities.

Question

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An interest rate option, unlike financial futures contracts, gives the holder the right, but not the obligation, to buy or sell securities at a specified price on or before a certain date, providing flexibility and "one-sided" protection against interest rate changes without obligating them to deliver or take delivery of securities.

A Hedging Tool That Provides "One-Sided" Insurance Against Interest Rate