If a Risk Manager Wants to Put on an Upper

question 100

Multiple Choice

If a risk manager wants to put on an upper limit on an interest rate payable on a future borrowing by buying an option and at the same time he wants an option that puts a minimum limit on how low interest rate payable may fall,this combination is called:

• A) a cap.
• B) a floor.
• C) a collar.
• D) a wrap.

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Definitions:

Correlation

A statistical measure that describes the extent to which two variables move in relation to each other.

Linear Relationship

A correlation between two variables where the change in one variable is proportional to the change in another.

Coefficient Of Skewness

A statistical measure that describes the asymmetry of the distribution of values in a data set around its mean.

Asymmetry

A situation where data or a distribution does not show symmetry and has one side that is different in shape or length from the other.