An Interest Rate Floor Can Be Used by a Depository

question 10

True/False

An interest rate floor can be used by a depository institution to lock in an interest rate spread over its cost of funds but maintain the opportunity to benefit if rates decline.

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Definitions:

Open-End Credit Line

A flexible loan facility that allows borrowers to draw down, repay, and redraw loans up to a specified credit limit.

Finance Charge

The total cost of borrowing, including interest and any other charges assessed by the creditor on a loan or credit.

Unpaid Balances

Amounts owed that have not yet been paid, typically referring to outstanding debts or bills.

Unsolicited Merchandise

Goods sent to a person without their request, where the recipient is typically under no obligation to pay for or return the items.