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Question
The safest way to hedge a bond liability with options is to
A. purchase a call option on the bond.
B. write a call option on the bond.
C. purchase a put option on the bond.
D. write a put option on the bond.
Answer
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Related questions
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A macro hedge is a hedge of a particular asset or liability exposure to a change in a macroeconomic variable.
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Buying a cap is similar to buying a call option on bond prices.
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Due to convexity problems, banks are actually better off using the simpler repricing model to manage interest rate risk rather than the duration model.
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The cash flow from the interest a bank receives on a long-term loan that is normally reinvested is called the runoff from the loan.
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If a bank has a negative repricing gap, falling interest rates increase profitability.
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In a bank's three-month maturity bucket, a 30-year ARM with a rate reset in six months would be considered a fixed rate asset, but in its one-year maturity bucket, this ARM would be considered a rate-sensitive asset.
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Why might a bank face abnormal deposit drains?
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Explain how liquidity risk can lead to insolvency risk.
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In the absence of deposit insurance, a deposit is a _______________ to the bank's assets.A. pro rata claimB. first come/first serve claimC. full pay or no pay claimD. both A and BE. both B and C
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A. Class A
B. Class B
C. Class C
D. Class Z
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B. the bonds had variable interest rates.
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D. the bonds were uncollateralized.
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Vulture funds specialize in buying distressed loans.
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