Why Might a Bank That Has Purchased a Cap Also

question 62

Multiple Choice

Why might a bank that has purchased a cap also wish to also sell a floor?

• A) By themselves, caps are ineffective at limiting changes in a bank's cost of funds in a desirable way.
• B) Regulators require one to be used with the other.
• C) Selling a floor reduces the cost of buying the cap.
• D) Dealers won't sell a cap without also dealing with the floor to limit their own risk.
• E) It is not a complete hedge without both positions.

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The degree to which managerial actions achieve the desired outcomes and objectives through efficient resource use.

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