If a bank manager wants to protect the bank against losses that would be incurred on its portfolio of treasury securities should interest rates rise,he could ________ options on financial futures.

Question

Quizplus · Accepted Answer

Buying put options on financial futures allows the bank manager to protect against losses in the value of the treasury securities if interest rates rise. A put option gives the holder the right to sell a futures contract at a predetermined price, which would provide a hedge if the futures price declines due to rising interest rates. Buying a call option or selling either a put or call option would not provide the same level of protection against potential losses on the bank's treasury holdings.

If a Bank Manager Wants to Protect the Bank Against