Buying a Call Option on a Bond Ensures a Bank

question 56

True/False

Buying a call option on a bond ensures a bank that it will be able to sell the bond at a given point in time for a price at least equal to the exercise price of the option.

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Definitions:

Supply Curves

A graphical representation of the relationship between the price of a good and the quantity of the good supplied by producers.

Allocative Efficiency

A state of the economy in which production represents consumer preferences; in other words, when capital goods are distributed in the most beneficial manner among the population.

Production Possibilities Curve

A graphical representation that shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently utilized.

Competitive Markets

Markets where numerous producers and consumers interact, leading to efficient distribution of goods and services and price determination through supply and demand.