An interest rate collar consists of:
A) buying an interest rate cap and selling an interest rate floor.
B) buying an interest rate floor and selling an interest rate cap.
C) selling an interest rate floor and buying an interest rate cap.
D) buying a call option and selling a futures contract.
E) selling a put option and buying a futures contract.

Question

Quizplus · Accepted Answer

An interest rate collar is a hedging strategy that involves buying an interest rate cap (to protect against rising interest rates) and selling an interest rate floor (to offset the cost of the cap, but limits the benefit of falling interest rates).

An Interest Rate Collar Consists Of