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:

Imports

Goods and services purchased from other countries, bringing them into the domestic market for consumption or input into further production.

Exports

Goods or services sold by one country to other countries on the international market.

Gold Standard

A monetary system in which the standard economic unit of account is based on a fixed quantity of gold.

Drawbacks

Drawbacks are disadvantages or negative aspects of a situation, plan, or product that may not make it as favorable as it seems.