Commercial Bank Recognizes That Its Net Income Suffers Whenever Interest

question 8

Multiple Choice

commercial bank recognizes that its net income suffers whenever interest rates increase Which of the following strategies would protect the bank against rising interest rates?

• A) Entering into an interest rate swap where the bank receives a fixed payment stream, and in return agrees to make payments that float with market interest rates.
• B) Purchase principal only (PO) strips that decline in value whenever interest rates rise.
• C) Enter into a short hedge where the bank agrees to sell interest rate futures.
• D) Sell some of the bank's floating-rate loans and use the proceeds to make fixed-rate loans.
• E) Buying inverse floaters.

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