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

question 82

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.

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Unused Capacity

The portion of a company's production capability or resources that is not being utilized to its full potential.

Number of Employees

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