An FI Issued $1 Million of 1-Year Maturity Floating Rate

question 72

Multiple Choice

An FI issued $1 million of 1-year maturity floating rate commercial paper.The commercial paper is repriced every three months at the 91-day Treasury bill rate plus 2 percent.What is the FI's interest rate risk exposure and how can it use financial futures and options to hedge that risk exposure?

• A)The FI can hedge its exposure to interest rate increases by selling financial futures.
• B)The FI can hedge its exposure to interest rate decreases by selling financial futures.
• C)The FI can hedge its exposure to interest rate increases by buying financial futures.
• D)The FI can hedge its exposure to interest rate increases by buying call options.
• E)The FI cannot hedge its exposure to interest rate increases or decreases using financial futures

Understand the concept of duality in consumer theory and how it relates to utility maximization.

Identify and apply the principle of equal marginal utility per dollar spent across goods.

Comprehend and apply the concept of the Lagrange multiplier in the context of constrained optimization problems.

Understand the Hicksian substitution effect and its implications on consumer choice.

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Definitions:

Coronary Artery Disease

A condition characterized by the narrowing of the coronary arteries due to the build-up of plaque, leading to reduced blood flow to the heart.

Blood Flow

The continuous circulation of blood through the heart and blood vessels, delivering nutrients and oxygen to and removing waste products from tissues throughout the body.

Arteries

Blood vessels that carry oxygen-rich blood from the heart to the tissues of the body.

Coronary Artery Disease

A heart condition characterized by the narrowing of the coronary arteries, leading to a reduced blood supply to the heart muscle.