Questions from Financial Markets

Q: How is a DI’s distribution pattern of net deposit drains affected by

How is a DI’s distribution pattern of net deposit drains affected by the following? a. The holiday season. b. Summer vacations. c. A severe economic recession. d. Double-digit inflation.

Q: What are two ways a DI can offset the liquidity effects of

What are two ways a DI can offset the liquidity effects of a net deposit drain of funds? How do the two methods differ? What are the operational benefits and costs of each method?

Q: What are two ways a DI can offset the effects of asset

What are two ways a DI can offset the effects of asset-side liquidity risk, such as the drawing down of a loan commitment?

Q: What are some of the major differences between futures and forward contracts

What are some of the major differences between futures and forward contracts?

Q: An FI has purchased a $200 million cap of 9 percent

An FI has purchased a $200 million cap of 9 percent at a premium of 0.65 percent of face value. A $200 million floor of 4 percent is also available at a premium of 0.69 percent of face value. a. If in...

Q: How does hedging with options differ from hedging with forward or futures

How does hedging with options differ from hedging with forward or futures contracts?

Q: In each of the following cases, identify what risk the manager

In each of the following cases, identify what risk the manager of an FI faces and whether the risk should be hedged by buying a put or a call option. a. A commercial bank plans to issue CDs in three m...

Q: Suppose that an FI manager writes a call option on a T

Suppose that an FI manager writes a call option on a T-bond futures contract with an exercise price of 114 at a quoted price of 0-55. What type of opportunities or obligations does the manager have?

Q: How can caps, floors, and collars be used to hedge

How can caps, floors, and collars be used to hedge interest rate risk?

Q: Explain the similarity between a swap and a forward contract.

Explain the similarity between a swap and a forward contract.