Assume a savings institution has a large amount of fixed-rate mortgages and obtains most of its funds
Question:
Assume a savings institution has a large amount of fixed-rate mortgages and obtains most of its funds from short-term deposits. How could it use options on financial futures to hedge its exposure to interest rate movements? Would futures or options on futures be more appropriate if the institution is concerned that interest rates will decline, causing a large number of mortgage prepayments?
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The financial institution could purchase put options on interest rate futures If inter...View the full answer
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