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Your bank is asset sensitive and management wants to

Your bank is asset sensitive, and management wants to protect against loss from interest rate changes.

a. Would an interest rate cap or floor serve as a better hedge? Explain.

b. Would a collar or reverse collar serve as a better hedge? Explain.

c. Why would the bank choose a collar or reverse collar over a cap or floor, respectively? Explain.

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Financial Management: Your bank is asset sensitive and management wants to

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