Under the interest rate option, the buyer

A. Avoids unfavourable movement in interest rates

B. Gains from favorable movement in interest rates

C. Both a and b

D. Gains nothing, only the seller gains

Answer: Option C

Solution(By Examveda Team)

Under the interest rate option, the buyer avoids unfavourable movement in interest rates and gains from favorable movement in interest rates. An interest rate option is a financial derivative that allows the holder to benefit from changes in interest rates. Investors can speculate on the direction of interest rates with interest rate options. It is similar to an equity option and can be either a put or a call.