“Interest Rate Caps and Floors” Assess the volatility risk with an investment in a derivative, using an interest rate cap or floor in today’s marketplace Indicate whether or not you would advise...

• Assess the volatility risk with an investment in a derivative, using an interest rate cap or floor in today’s marketplace Indicate whether or not you would advise financial institutions to engage in this type of investment Provide support for your response


• Assess the effectiveness of using the Black-Scholes model to value cap and floor type investments, indicating how any pitfalls with this method of valuation can be minimized Provide support for your response

“Credit Protections”

• Assess the ability of the credit-derivatives market to provide warning signals well in advance of future downgrades in credit rating or headlines of company problems holds true today Provide an example of when the statement held true in today’s financial markets


• Consider the ideal role of the government, if any, in bringing about more transparency in the market for credit protection Provide an example of when government involvement would have helped protect investors from risks related to credit