Question: 6. Consider the following: a. What are the two ways to use call and put options on T-bonds to generate positive cash flows when interest

6. Consider the following: a. What are the two ways to use call and put options on T-bonds to generate positive cash flows when interest rates decline? Verify your answer with a diagram. b. Under what balance sheet conditions would an FI use options on T-bonds to hedge its assets and/or liabilities against interest rate declines? c. Is it more appropriate for FIs to hedge against a decline in interest rates with long calls or short puts?

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