Interest Rate Option

Product description

Interest rate options help clients to hedge against the risk of an undesirable development in the floating interest rate in the future, where he or she can profit from a positive development. If the client buys a interest rate option, he or she has the option, but not an obligation, to pay (or receive) the contracted amount of the interest rate (the strike rate). The client will pay an extra fee for the option, at the time when the contract is signed. When the transaction is due, the client will decide whether to use the option or not. If the reference rate  (PRIBOR, LIBOR, EURIBOR) grows beyond the strike rate, the buyer will use the option and will be paid the difference between these rates by the seller. If the reference rate does not grow beyond the strike rate, the option cannot be exercised.

The minimum amount for this transaction is EUR 1 mil. or an equivalent in another convertible currency.

Who provides information

Treasury Department