An Interest Rate Floor Is Designed to Protect an Institution

question 26

Multiple Choice

An interest rate floor is designed to protect an institution from
I. falling interest rates.
II. falling bond prices.
III. increased credit risk on loans.
IV. swap counterparty credit risk.

• A)I and IV
• B)II and III
• C)I and III
• D)II and IV
• E)I only

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Definitions:

Behavior

The actions, reactions, or functioning of an organism, typically in response to its environment or stimuli.

Salivate

The secretion of saliva from the salivary glands in the mouth, often triggered by the sight, smell, or thought of food.

Phone Ringing

The sound made by a telephone to alert the recipient of an incoming call.

Operant Conditioning

A method of learning that occurs through rewards and punishments for behavior, emphasizing the influence of consequences on behavior.