How Can a Bank Hedge When It Makes 1-Year Fixed-Rate

question 31

Multiple Choice

How can a bank hedge when it makes 1-year fixed-rate loans and finances them with 3-month floating-rate deposits?

• A)Buy Eurodollar futures contracts.
• B)Sell put options on Eurodollar futures contracts.
• C)Sell Eurodollar futures contracts.
• D)Buy call options on Eurodollar futures contacts.
• E)b.and c.

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Definitions:

Ego

Within the framework of psychoanalytic theory, it's the component of one's personality that acts as an intermediary among the desires of the id, the superego, and the exigencies of reality.

Psychodynamic Perspective

A psychological approach focusing on unconscious processes and emotional factors that underpin human behavior.

Unconscious Processes

Mental activities not readily available to conscious awareness, often influencing behaviors, thoughts, and feelings without one's notice.

Psychosexual Stages

According to Freud, stages in the developmental process children pass through; in each stage, sex drives are focused on the stimulation of certain areas of the body, and particular psychological issues can arouse anxiety.