It is now the 31^st January. The Treasurer of Sigma Company is reviewing cash forecast and funding requirements and has identified the need for the following transactions:

Transaction 1:

Sigma Company will have a surplus of 1 million from the 1^st of May for 3 months, which will need to be deposited to earn additional interest. The Treasurer has seen inverted interest rate yield curves in the financial press, so is considering using a 3v6 FRA quoted at 5% - 5.6% to hedge the interest rate risk exposure. He is also considering the use of interest rate options as an alternative strategy.

Transaction 2:

Sigma Company also needs to borrow 20 million longer term debt to finance expansion. The Treasurer would prefer to borrow at a floating rate but does not feel that the company can obtain competitive rates. He is thus considering the possibility of borrowing fixed and entering into a swap agreement. Sigma Companys advisors have identified Omega Company as a possible counter party. Details of the current borrowing rates that each company can achieve are as follows:

Company	Best Fixed Rate	Best Variable Rate
Sigma Company	7%	LIBOR + 3%
Omega Company	6%	LIBOR + 1%

hich one of the following best describes an interest rate option?

Select one:

a. A right but not an obligation to buy or sell interest rate futures

b. An obligation to obtain a loan at an agreed interest rate at a future date

c. A right but not an obligation to obtain a loan (or deposit) at a future date

d. A right but not an obligation to an agreed interest rate on a notional loan or deposit