Floortion enables the option holders to use his right to sell or purchase Interest rate floor on a given rate during a specific period. The premium is paid upfront by user when he uses the option.
Benefits of both option and interest rate floor are available in floortion. The investors have a right to get the payoff if rate of interest in a specific floating –rate goes lower then a specific rate. The investor normally uses the option of not buying the interest rate floor when it is available at higher than the purchase price in case interest rate on specific floating rate do not go down beyond a specific rate.
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