How can a bank hedge when it makes 1-year fixed-rate loans, Financial Management

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How can a bank hedge when it makes 1-year fixed-rate loans

1. How can a bank hedge when it makes 1-year fixed-rate loans and finances them with 3-month floating-rate deposits?

Buy Eurodollar futures contracts

Sell put options on Eurodollar futures contracts

Sell Eurodollar future contracts

Buy call options on Eurodollar future contracts

2. A&M Hardware assumes new customers will default 8 percent of the time but if they don’t default, they will become repeat customers who always pay their bills. Assume the average sale is $383 with a variable cost of $260, and a monthly required return of 1.65 percent. What is the NPV of extending credit for one month to a new customer?

$6,103.47

$6,858.18

$6,598.18

$5,748.09

$5,589.09

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Financial Management: How can a bank hedge when it makes 1-year fixed-rate loans

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Financial Management: How can a bank hedge when it makes 1-year fixed-rate loans

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