If a risk manager wants to put on an upper limit on an interest rate payable on a future borrowing by buying an option and at the same time he wants an option that puts a minimum limit on how low interest rate payable may fall,this combination is called:

Question

Quizplus · Accepted Answer

A collar is a combination of a cap and a floor options. The cap option sets an upper limit on an interest rate payable on a future borrowing, while the floor option sets a minimum limit on how low the interest rate payable may fall. A collar is used to limit the range of possible interest rate fluctuations for a borrower or a lender.

If a Risk Manager Wants to Put on an Upper