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:

Include

To contain, encompass, or have something as part of a whole or group.

American Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a specified quantity of an asset at a predetermined price within a specified time period until expiration.

Underlying Asset

An asset or security on which a derivative instrument, such as a futures or options contract, is based.

Value Decrease

Occurs when the value of an asset or investment declines over time due to market conditions, wear and tear, or other factors.