What Is Exchanged When a Put Option on an Interest

question 17

Multiple Choice

What is exchanged when a put option on an interest rate futures is exercised?

• A) A long position in a futures contract for the holder of the option and a short position in a futures contract for the option writer
• B) A short position in a futures contract for the holder of the option and a long position in a futures contract for the option writer
• C) Cash payoff, a long position in a futures contract for the holder of the option, and a short position in a futures contract for the option writer
• D) Cash payoff, a short position in a futures contract for the holder of the option, and a long position in a futures contract for the option writer

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Definitions:

Dividends

Payments made by a corporation to its shareholders, usually as a distribution of profits.

Unbiased Forward Rate

An estimate of future spot interest rates implied by current interest rates, under the assumption that the forward rates are an unbiased predictor of future spot rates.

Future Spot Rate

The anticipated price of an asset at a future date in a spot transaction, which involves the immediate settlement of the transaction.

Spot Rate

The present market value at which a specific currency can be purchased or exchanged for instant delivery.