Future Options Are Particularly Useful for Offsetting Risk Created When

question 31

Multiple Choice

Future options are particularly useful for offsetting risk created when a bank ________.

• A) extends option-like commitments to bank customers
• B) has the right to borrow at a fixed-rate in the future
• C) has a loan portfolio of primarily fixed-rate loan products
• D) is involved in gold and other inflation-hedging instruments

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Definitions:

Expansion Option

A strategic investment choice that gives a company the option but not the obligation to expand its operations or invest in new projects if market conditions are favorable.

Monte Carlo Simulation

A computational technique that uses random sampling to obtain numerical results, often used to assess risk and uncertainty in financial and project management.

Subjective Estimates

Assessments or judgments made that rely on personal feelings, tastes, or opinions rather than external observable phenomena.

Probability Outcomes

The set of possible results in an experiment or situation, often quantified as likelihoods or percentages.