Chapter 15: Interest rate risk

Question 1

FRA

Answer 1

: A contract with a bank covering a specific amount of money to be borrowed over a specific time period in the future at an interest rate agreed now.

Question 2

Interest rate futures

Answer 2

: An interest rate futures contract is a contract to receive or pay interest on a notional standard quantity of money at an agreed future date at a specified interest rate

Question 3

Interest rate options

Answer 3

: Gives an option holder the right to pay or receive interest on an agreed quantity of money, at a specific interest rate on or before a future expiry date.

Question 4

Interest rate swap

Answer 4

: An agreement whereby the parties to the agreement exchange interest rate commitments.

Question 5

Call option

Answer 5

: An option to receive interest at a pre-determined rate on a standard notional amount over a fixed period in the future.

Question 6

Put option

Answer 6

: An option to pay interest at a pre-determined rate on a standard notional amount over a fixed period in the future.