Currency Options, Interest Rate Options and Options on Futures 427
For example, a oating-rate loan may be stated as a loan with MIBOR + 150 basis points, with the
interest reset every six months. Suppose the 6-month MIBOR is 6% at the time of undertaking the loan,
the interest rate for the rst six months will be xed at 7.5% (6% + 150 basis points). At the end of
six months, let us assume that the 6-month MIBOR is 6.3%. In this case, the interest rate for the next
six months will be set at 7.8% (6.3% + 150 basis points). Since the future MIBOR rates are not known at
the current time, there is a risk of unknown future int ...
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