22-59 an FI Issued $1 Million of 1-Year Maturity Floating

question 40

Multiple Choice

22-59 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.
• E)The FI cannot hedge its exposure to interest rate increases or decreases using financial futures

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Definitions:

Ambiguous Stimulus

A stimulus that lacks clarity or can be interpreted in more than one way, often used in psychological experiments to study perception and cognition.

Self-report Questionnaire

A method of data collection in which individuals provide responses to questions posed by researchers, typically regarding their behavior, thoughts, or feelings.

Behavioral Inhibition System

A neurobiological system that regulates response to stimuli which signal punishment, non-reward, or novel situations.

Gray's Reinforcement Sensitivity Theory

A theory in psychology that explains human personality and behavior through systems controlling responses to reward and punishment.