Exam 24: Hedging With Financial Derivatives

If a bank has a gap of -$10 million, it can reduce its interest-rate risk by

A put option gives the seller the ________ to ________ the underlying security.

Discuss the advantages of using swaps to protect against interest-rate risk rather than restructuring the balance sheet.

To reduce the interest-rate risk of holding a portfolio of bonds, Treasury bond futures contracts should be bought.

How would a firm use exchange rate futures to lock in current exchange rates?

Explain how a swap could be used to reduce interest-rate risk for a bank with more rate-sensitive assets than rate-sensitive liabilities.

A short contract obligates the holder to sell securities in the future.

If you sell a short contract on financial futures, you hope interest rates will ________.

If you sell a futures contract on the S&P 500 Index at a price of 450 and the index rises to 500, you will ________.

The main disadvantage of futures contracts as compared to options on futures contracts is that futures

Explain the advantages of protecting against interest-rate risk using options rather than futures contracts.

The use of financial derivatives by financial institutions to hedge can decrease risk. However, they can also increase risk. Which of the following examples illustrates this?

The risk that occurs because stock prices fluctuate is called ________.

A swap that involves the exchange of a set of payments in one currency for a set of payments in another currency is a(n)________.

A put option gives the owner the ________ to ________ the underlying security.

Which of the following is not a financial derivative?

Who would be most likely to buy a long stock index future?

Financial derivatives include ________.

A call option gives the seller the ________ to ________ the underlying security.

Financial derivatives include ________.