The Convexity Bias Between FRAs and Eurodollar Futures Implies That

question 23

Multiple Choice

The convexity bias between FRAs and eurodollar futures implies that

• A)The futures results in greater cash outflows or smaller cash inflows than the FRa.
• B)The futures settlement amount is convex in Libor rates.
• C)The futures results in greater cash inflows or lower cash outflows than the FRA.
• D)The FRA payoff minus the futures payoff is convex in Libor rates.

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Definitions:

Normative Social Influence

The influence to conform with the positive expectations of others, often to gain approval or avoid social sanctions, unrelated to actual beliefs or facts.

Cognitive Dissonance

The unsettling sensation experienced when a person simultaneously upholds multiple conflicting beliefs, ideas, or values.

Group Members

Individuals who belong to a defined collective or team, sharing common goals or purposes.

Informational Social Influence

The process where individuals change their opinions or behavior in response to accessing new information or knowledge from others.