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Writing an Interest Rate Call Option May Hedge an FI

question 35

True/False

Writing an interest rate call option may hedge an FI when rates rise and bond prices fall.


Definitions:

Government Budget Deficit

An economic condition occurring when government expenditures exceed its revenue in a fiscal period.

Interest Rate

The percentage charged or earned on a principal sum of money or an investment over a specified period of time.

Net Capital Outflow

The difference between the domestic purchases of foreign assets and the foreign purchases of domestic assets.

Exchange Rate

The rate at which one currency can be exchanged for another.

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