Question

If you are borrowing money and wish to have a cap on your interest rate. you will be?

A.The purchaser of the option

B.The writer of the option

C. I need more information to make the determination.

Answer 1

If I am borrowing money and I wish to have a cap on the interest rate then I am neither the purchaser nor the writer of the option. The purchaser of the option is given the right and not the obligation to buy the underlying asset as mentioned in the contract. The writer of option is the one who writes the contract to earn premium from the purchaser of the option. So, in both the options, there is no clarity about borrowing. Thus, the answer is option c i.e. more information is needed.