23-32 Exercise of a put option on futures by the buyer of the option will occur if interest rates have increased.

Question

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A put option gives the buyer the right, but not the obligation, to sell the underlying futures contract at a predetermined price (strike price) on or before the expiration date. If interest rates have increased, the price of the futures contract is likely to fall, making the put option more valuable and leading the buyer to exercise their right to sell at the higher strike price.

23-32 Exercise of a Put Option on Futures by the Buyer