A Bank Seeking to Avoid Lower Than Expected Yields from Loans

question 78

Multiple Choice

A bank seeking to avoid lower than expected yields from loans and security investments is most likely to use:

• A)a short position or selling hedge in futures.
• B)a long position or buying hedge in futures.
• C)a long position in put option on futures contracts.
• D)a long position or buying hedge in futures and a long position in put option on futures contracts.
• E)None of the options are correct.

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Definitions:

Operating Activities

The portion of a company's cash flow statement that details the cash generated or used in the company's primary business operations, excluding investing and financing activities.

Depreciation Expense

The allocated amount of an asset's cost expensed over its useful life to account for the decline in its value due to wear and tear.

Loss on Sale

The financial loss incurred when the selling price of an asset is less than its carrying amount at the time of sale.

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, broken down into operating, investing, and financing activities.