Hedging the FI's Interest Rate Risk by Buying a Put

question 7

True/False

Hedging the FI's interest rate risk by buying a put option on a bond is an attractive alternative for an FI.

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Definitions:

Accounting Profit

The net income a company reports on its financial statements, calculated as total revenues minus explicit costs of doing business.

Marginal Cost

The additional cost incurred by producing one more unit of a good or service.

Marginal Benefit

The additional benefit derived from producing one more unit of a good or service.

Accounting Profit

The total revenue of a business minus its explicit costs; essentially the net income reported on the financial statements.