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Interest Rate Options also known as Interest Rate Guarantees are available to benefit from the rise/fall in the interest rates.
My question, Interest rate options are used on Interest Rate Futures (or) Forward Rate Agreements?
Interest rate options have nothing to do with FRA’s.
Options can either be traded options in which case they are options to buy or sell interest rate futures at a fixed price, or alternatively they can be over-the-counter options (i.e. direct the the bank and not tradeable) in which case they are IRG’s (interest rate guarantees).
Very little in terms of calculations can be asked in Paper FM (calculations are asked in great detail in Paper AFM).
All of this is explained in my free lectures on interest rate risk management.
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