A Bank with Short-Term Floating-Rate Assets Funded by Long-Term Fixed-Rate

question 17

Multiple Choice

A bank with short-term floating-rate assets funded by long-term fixed-rate liabilities could hedge this risk by
I. buying a T-bond futures contract.
II. buying options on a T-bond futures contract.
III. entering into a swap agreement to pay a fixed rate and receive a variable rate.
IV. entering into a swap agreement to pay a variable rate and receive a fixed rate.

• A)I and III only
• B)I,II,and IV only
• C)II and IV only
• D)III only
• E)IV only

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Definitions:

Firm Commitment

A definitive promise by an underwriter to purchase all of an issuer's securities at a specified price for resale to the public.

Going Private

A corporate transaction in which the entire equity of a publicly traded firm is purchased by a small group of investors.

Managerial Efficiency

The effectiveness with which managers utilize resources and operate businesses to achieve desired outcomes and profitability.

Security Registration

The legal process through which securities are registered with relevant authorities before being offered to the public or placed on the market.