A call option on interest rates is called an

Question

Quizplus · Accepted Answer

A call option on interest rates is called an interest rate cap. An interest rate cap is a derivative contract between a buyer and a seller, where the buyer of the cap pays the seller a premium to protect against an increase in interest rates. The cap sets a maximum interest rate that the buyer will pay, and if the interest rate exceeds the cap, the seller will pay the buyer the difference between the cap and the actual interest rate.

A Call Option on Interest Rates Is Called an