A lender can use an interest rate option to secure a floor on its lending rate but forgoes any benefit from a rise in future lending rates.

Question

Quizplus · Accepted Answer

An interest rate floor allows a lender to secure a minimum interest rate on its lending, but it does not forgo the benefit from a rise in future lending rates. Instead, it ensures the lender receives at least the floor rate, while still benefiting if rates rise above the floor.

A Lender Can Use an Interest Rate Option to Secure