Selling an interest rate call option may hedge an FI when rates rise and bond prices fall.

Name: Selling an interest rate call option may hedge an FI when rates rise and bond prices fall.
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Question

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Selling an interest rate call option exposes the seller to losses if rates rise, as the option buyer would exercise the option to benefit from higher rates. To hedge against rising rates, an FI would typically buy an interest rate call option or sell an interest rate put option.

Selling an Interest Rate Call Option May Hedge an FI