23-15 Writing an interest rate call option may hedge an FI when rates rise and bond prices fall.

Name: 23-15 Writing 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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Writing an interest rate call option exposes the writer to losses if rates rise, as the option buyer will exercise the option to benefit from higher rates, which does not hedge against falling bond prices.

23-15 Writing an Interest Rate Call Option May Hedge an FI