What Are Interest-Rate Options and How Can They Be Used

question 56

Essay

What are interest-rate options and how can they be used to hedge an interest rate exposure for a borrower?

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Definitions:

Other Comprehensive Income (OCI)

Items of income and expense that are not included in net income but directly affect equity, such as changes in the value of foreign investments.

Statement of Changes

A financial report detailing the changes in equity of a company over a period, including transactions with shareholders and comprehensive income.

Stockholders' Equity

A company's net worth derived from the difference between its total assets and total liabilities, representing the ownership interest of its shareholders.

Consumable Items

Items that are intended to be used up and replaced in a short period of time, often part of operating supplies.