Currency Options, Interest Rate Options and Options on Futures 419
17.2.3 Interest Rate Options
In stock options, currency options, and bond options, the underlying security is a tangible security and
the investor has the option of buying or selling the security at the exercise price and the option of agreeing
to a cash settlement if the option is exercised. On the other hand, interest options are written on interest
rates, and the option investors use these interest rate options to hedge against interest rate risk. In interest
rate options, buying and selling interest rates is not possible, if the option is exercised. is is the major
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