A Bank Wants to Use STIR Futures for Establishing a Macro

question 426

Multiple Choice

A bank wants to use STIR futures for establishing a macro hedge for the asset portfolio. Which of the following statements is correct?

• A) It is reasonable for the bank to purchase futures contracts if they expect interest rates to rise.
• B) It is reasonable for the bank to take a long position in anticipation of rising rates.
• C) Losses (or gains) in the value of the cash position can be largely offset by gains (or losses) in the value of the futures position
• D) It is reasonable for the bank to sell futures contracts if it expects interest rates to fall

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Definitions:

Vicarious Learning

The process of learning new behaviors or skills by observing the actions of others and the consequences that follow.

Operant Conditioning

An educational method whereby reinforcement or punishment adjusts the intensity of a behavior.

Psychoanalysis

A method of therapy and theory of personality developed by Sigmund Freud, emphasizing unconscious motives and conflicts.

Social Learning Theory

A theory which suggests that people learn new behaviors and attitudes through observing the behavior of others and the outcomes of those behaviors.