Hedging the FI's Interest Rate Risk by Buying a Put

question 7

True/False

Hedging the FI's interest rate risk by buying a put option on a bond is an attractive alternative for an FI.

---

Definitions:

Pleasure Principle

A psychoanalytic concept that describes people's instinctual seeking of pleasure and avoidance of pain to satisfy biological and psychological needs.

Ego

A part of the psyche that mediates between the conscious, the unconscious, and the reality by deploying defense mechanisms.

Superego

A component of Sigmund Freud's psychoanalytic theory, representing the moral conscience and the ideal self, influenced by societal and parental standards.

Conservative

A political and social philosophy that promotes retaining traditional social institutions in the context of culture and civilization.