When interest rates fall,a bank that perfectly hedges its portfolio of Treasury securities in the futures market
A)suffers a loss.
B)experiences a gain.
C)has no change in its income.
D)may either gain,lose or see no change in its income.

Question

Quizplus · Accepted Answer

A perfectly hedged portfolio means that the bank has offset its risk exposure, so changes in interest rates should not affect its income.

When Interest Rates Fall,a Bank That Perfectly Hedges Its Portfolio