A Bank Anticipates It Will Need to Borrow Funds in the Eurodollar

question 12

Multiple Choice

A bank anticipates it will need to borrow funds in the Eurodollar market in the future. It hedges by selling futures contracts. If rates decline, which of the following is true?

• A) The bank will profit on the futures contract.
• B) The bank will profit in the cash market.
• C) The bank will have locked in a low cost of borrowing.
• D) The bank will lose in the cash market.
• E) Both a. and d. are true.

---

Definitions:

Financial Statements

are formal records of the financial activities and position of a business, individual, or other entity, typically including the balance sheet, income statement, and cash flow statement.

Functional Currency

The primary currency of the primary economic environment in which an entity operates.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Amortization

The process of gradually writing off the initial cost of an asset over a period.