The most typical interest-rate hedging problem financial institutions face is:

1. Avoiding a fall in interest returns expected from loans and security holdings
2. Avoiding a negative interest-sensitive gap
3. Avoiding a positive relative interest sensitive gap
4. Avoiding a fall in borrowing costs

7. A liability-sensitive financial institution will typically hedge its position to avoid lower net interest income by:

1. Using an interest rate floor
2. Executing a call option
3. Using an interest rate collar
4. Executing a put option

8. In a put option:

1. The option writer must stand ready to deliver securities to the option buyer upon request.
2. The option writer must stand ready to accept delivery of securities from the option buyer if the latter requests.
3. The buyer has the right, but not the obligation, to take a long position.
4. Both (b) and (c).

9. A financial institution that buys a particular futures contract and later sales the same contract back is:

1. Trying to avoid falling yields on loans and securities investment
2. Executing a long hedge
3. Executing a short hedge
4. Both (a) and (b)

10. If interest rates fall:

1. Short futures contracts are more likely to be exercised
2. Call options are more likely to be exercised
3. Put options are more likely to be exercised
4. Long futures contracts are more likely to be exercised