A Bank with Short-Term Floating-Rate Assets Funded by Long-Term Fixed-Rate

question 17

Multiple Choice

A bank with short-term floating-rate assets funded by long-term fixed-rate liabilities could hedge this risk by
I. buying a T-bond futures contract.
II. buying options on a T-bond futures contract.
III. entering into a swap agreement to pay a fixed rate and receive a variable rate.
IV. entering into a swap agreement to pay a variable rate and receive a fixed rate.

• A)I and III only
• B)I,II,and IV only
• C)II and IV only
• D)III only
• E)IV only

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Definitions:

Social Exchange Theory

The idea that interpersonal relationships are governed by perceptions of the rewards and costs exchanged in interactions.

Economic Model

A theoretical construct representing economic processes by a set of variables and a set of logical or quantitative relationships between them.

Evolutionary Implications

The potential long-term effects or significances of evolutionary processes on organisms, behaviors, or traits.

Wearing Red

Often associated with increased attractiveness, dominance, or power, influenced by cultural or psychological interpretations of the color.