Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › interest rate collar
- This topic has 6 replies, 2 voices, and was last updated 3 years ago by John Moffat.
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- December 11, 2020 at 11:18 am #599400
sir collars are an example of OTC type of contract, right?
December 11, 2020 at 1:31 pm #599431No. They can be OTC, but in exam questions they have always been traded options.
December 12, 2020 at 1:09 pm #599693also sir i had another doubt about interest rate caps; how are interest rate caps defined as a series of call options?
two doubts related to this statement:
1- aren’t interest rate caps involving put option?
2- isn’t it of one put option only instead of a ‘series’?December 12, 2020 at 4:56 pm #599724You are obviously not reading my lecture notes and watching my lectures – it is very annoying to have to type out what is in them again! 🙁
A borrower will indeed buy a put option in order to fix the maximum interest rate – so a cap.
An investor will buy a call option in order to fix the minimum rate, but this is a floor and not a cap.As far as the second statement is concerned, then yes – certainly as far as the exam is concerned it will be just one option and not a series. I suppose in ‘real life’ a series of options may be considered if the interest rate is floating,
December 14, 2020 at 8:12 am #599878Sir i have watched your lectures thoroughly once at least. The reason why I asked it is because this sentence was a part of an answer mentioned in my exam kit, and i thought it was clearly wrong. But then just to confirm( given it came from a credible source) and check the veracity of the statement I posted it here
December 14, 2020 at 8:13 am #599879Thank you for your confirmation sir!
December 14, 2020 at 1:03 pm #599899You are welcome 🙂
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