When Interest Rates Fall,a Bank That Perfectly Hedges Its Portfolio

question 70

Multiple Choice

When interest rates fall,a bank that perfectly hedges its portfolio of Treasury securities in the futures market

• A)suffers a loss.
• B)experiences a gain.
• C)has no change in its income.
• D)may either gain,lose or see no change in its income.

---

Definitions:

Cost Savings

A reduction in costs achieved through effective resource management, often resulting in increased profit margins.

Cash Payback

The period of time required for the cash flows from a capital investment to repay the initial investment cost.

Straight-Line Method

Depreciation method in which periodic depreciation is the same for each year of the asset’s useful life.

Cash Inflow

The total amount of money being transferred into a business, from operations, investments, or financing activities, within a specific period.