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 would give the bank manager the right to sell Treasury futures contracts at a fixed price, thereby protecting the bank against losses in the event that interest rates rise. This would hedge the bank's portfolio and limit its potential losses. Buying call options or selling options would not provide the same protection against rising interest rates.

If a Bank Manager Wants to Protect the Bank Against