DEFINITION of 'Interest Rate Call Option'
An interest rate derivative in which the holder has the right to receive an interest payment based on a variable interest rate, and then subsequently pays an interest payment based on a fixed interest rate. If the option is exercised, the investor who sells the interest rate call option will make a net payment to the option holder.
INVESTOPEDIA EXPLAINS 'Interest Rate Call Option'
Interest rate call options can be used by an investor wishing to hedge a position in a loan in which interest is paid based on a floating interest rate. By purchasing the interest rate call option, an investor is able to forecast the cash flow that will be paid when the interest payment is due.
Interest rate call options can be used in either a periodic or balloon payment situation.

Balloon Maturity
1. A repayment schedule for a bond issue where a large number ... 
Derivative
A security whose price is dependent upon or derived from one ... 
Interest Rate
The amount charged, expressed as a percentage of principal, by ... 
Fixed Interest Rate
An interest rate on a liability, such as a loan or mortgage, ... 
Balloon Loan
A type of loan which does not fully amortize over its term. Since ... 
Variable Interest Rate
An interest rate on a loan or security that fluctuates over time, ...

To what extent are utility stocks affected by changes in interest rates?
Utility stocks are definitely subject to interest rate risk and can be significantly impacted by changes in interest rates. Competition ... Read Full Answer >> 
What is the difference between term structure and a yield curve?
There is no difference between term structure and a yield curve; the yield curve is simply another name to describe the term ... Read Full Answer >> 
Why is term structure theory of importance to economists?
The term structure theory, also known as the term structure of interest rates, is important to economists because it lets ... Read Full Answer >> 
What is the difference between derivatives and options?
Options are one category of derivatives. Other types of derivatives include futures contracts, swaps and forward contracts. ... Read Full Answer >> 
How are rights distributed in a rights offering?
In a rights offering, rights are distributed to shareholders based on the number of shares they already own. What Is a Rights ... Read Full Answer >> 
Where can I find yeartodate (YTD) returns for benchmarks?
Benchmarks are securities or groups of securities against which investment performance is analyzed. Examples of popular equity ... Read Full Answer >>

Options & Futures
Reducing Risk With Options
If you want to use leverage to your advantage, you must know how many contracts to buy. 
Options & Futures
Options Basics Tutorial
Discover the world of options, from primary concepts to how options work and why you might use them. 
Options & Futures
Understanding Option Pricing
Take advantage of stock movements by getting to know these derivatives. 
Options & Futures
The 4 Advantages of Options
Flexible and cost efficient, options are more popular than ever. Find out why. 
Options & Futures
Stock Options To Trade On Intraday Momentum Index
The intraday momentum index, or the IMI, can offer a reliable way to profit on options, but only for the right stocks. 
Trading Systems & Software
The FastPaced World of Libor & Fixed Income Arbitrage
LIBOR is an essential part of implementing the swap spread arbitrage strategy for fixed income arbitrage. Here is a stepbystep explanation of how it works. 
Options & Futures
Intro to NYSE Binary Return Derivatives
The New York Stock Exchange is entering into binary options trading. Here’s a quick introduction to how NYSE Binary Return Derivatives (ByRDs) work. 
Savings
Explaining Term Deposits
A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time. 
Economics
What's a Maturity Date?
Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt. 
Professionals
Worried About Stocks? Try on Convertibles
Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).