A bank has made long-term fixed-rate mortgages and has financed them with short-term deposits. To hedge out its interest rate risk, the bank could ________.

A) sell T-bond futures
B) buy T-bond futures
C) buy stock-index futures
D) sell stock-index futures

Question

Angel Xiong · Accepted Answer

Final Answer : A, Explanation :  The bank is exposed to the risk of rising interest rates, which would increase the cost of its short-term deposits relative to the fixed income from its long-term mortgages. By selling T-bond futures, the bank can hedge against this risk, as the value of T-bond futures typically decreases when interest rates rise, offsetting the bank's potential losses.

A bank has made long-term fixed-rate mortgages and has financed them with short-term deposits. To hedge out its interest rate risk, the bank could ________.

A) sell T-bond futures
B) buy T-bond futures
C) buy stock-index futures
D) sell stock-index futures

Definitions

Learning Objectives

Learning Objectives

Related questions

A bank has made long-term fixed-rate mortgages and has financed them with short-term deposits. To hedge out its interest rate risk, the bank could ________.A) sell T-bond futuresB) buy T-bond futuresC) buy stock-index futuresD) sell stock-index futures

Definitions

Learning Objectives

Learning Objectives

Related questions

A bank has made long-term fixed-rate mortgages and has financed them with short-term deposits. To hedge out its interest rate risk, the bank could ________.

A) sell T-bond futures
B) buy T-bond futures
C) buy stock-index futures
D) sell stock-index futures