ABC One bank purchases a Cap of 11% p.a from an insurance company (XYZ Life Ltd) on its borrowings of $100 million in the eurodollar market for one year. XYZ charges ABC a lump sum fee of 2% payable in advance. Later, the interest rates in this market rise to 12% p.s. for the year. What are the rights and obligations of the parties to the Cap contract??
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