Why are options on interest rate futures contracts preferred to options on cash instruments in hedging interest

Question:

Why are options on interest rate futures contracts preferred to options on cash instruments in hedging interest rate risk?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Financial Institutions Management A Risk Management Approach

ISBN: 978-0071051590

8th edition

Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders

See More Books

Question Posted: Dec 17, 2015 05:11 AM

See More Questions

Three savings and loan institutions (S&Ls) have identical balance sheet compositions: a high concentration of short-term deposits that are used to provide long-term, fixed-rate mortgages. The S&Ls...
Given the difference between forward rate agreements and interest rate futures contracts, would you expect the FRA rate to equal the futures interest rate, for otherwise identical contracts? Explain...
Interest Rate Futures: Fair Value Hedge Fabric retailer Petren Corp. buys 300,000 yards of cloth each quarter at an average price of $3.00/yard. To finance these purchases, Petren sells $1,000 face...
Pat has become concerned about the profitability and cash needs for the business as it grows. You have been asked to prepare some budgets for the second quarter of 2020: the three months of April,...
Why are syndicated loans especially useful for financing takeovers?
Propose a mechanism for the following reaction: ao o O + CH CO CH2OCcH
Success at Quitting Smoking After six months, 156 of the 914 smokers who accepted the invitation to be in the reward-only program stopped smoking, while 78 of the 146 smokers who paid a deposit quit....
Which of the characteristics of a successful entrepreneur, discussed in the chapter, do you see in Nick Woodman? To what degree do you think these characteristics have contributed to GoPros success?
Windsor Advertising was founded in January 2013. Presented below are adjusted and unadjusted trial balances as of December 31, 2020. WINDSOR ADVERTISING TRIAL BALANCE DECEMBER 31, 2020 Unadjusted Dr....
Edra wants to consolidate the data from each of the regions. Switch to the Consolidated Sales worksheet, then update the worksheet as follows: In cell A6, enter a formula without using a function...
A pension fund manager anticipates the purchase of a 20-year, 8 percent coupon Treasury bond at the end of two years. Interest rates are assumed to change only once every year at year-end, with an...
Consider Figure 23-13. What are the prices paid for the following futures options: a. March T-bond calls at $153. b. March 10-year T-note puts at $151.50 c. December Eurodollar puts at 99.50 percent.
Standards differ from budgets in that: (a) budgets but not standards may be used in valuing inventories. (b) budgets but not standards may be journalized and posted. (c) budgets are a total amount...
The current price of Hatha Corp. (Symbol: HACK) stock is $10. The current date is t=0, and future times are t=1, t=2, and t=3. In each of the next three periods, HACK stock can increase by 20% or...
Rational functions can model key economic information for businesses. In manufacturing, start-up costs can be high because of the equipment required to make a product. Rational functions can model...
Zulu Ltd manufactures a single product whose cost structure is given below: Sh Sh Direct materials: Material ABA (2 kg @ Sh 25 per kg) Material BCA (3 litres @ Sh 75 per litre) Direct labour (4 hours...
Based on the following projections for a potential project, complete the Cash Flow Table. decimal places for all values. Estimated Sales (000s) Capital Investment Requirements (000s) Opening Balances...
7. Below is the Trial Balance of Manson Kotobre Company on 31 May, 2013. DR. CR. GH'000 GH'000 Stocks: 01/06/12 Finished goods Raw materials Purchases of raw materials Carriage outwards Carriage on...
Each of the following taxpayers received a state income tax refund in 2021. In all cases, the taxpayer has a filing status of married filing jointly. What amount of the refund is properly included in...
Select the correct answer for each of the following questions. 1. On December 31, 20X3, Saxe Corporation was merged into Poe Corporation. In the business combination, Poe issued 200,000 shares of its...
How do bond ratings and interest rate spreads on bonds differ? Which measure is considered by many investors to be a more comprehensive measure of risk? Why?
Describe the major bond market participants.
What is the difference between a Eurobond and a foreign bond?
Choose from the following topics to create discussion: Humanity and the Natural Environment Housing and Home Furnishings Privacy and Socializing
On December 31, 2020, Pearl Company had $1,101,000 of short-term debt in the for January 21, 2021, the company issued 22,800 shares of its common stock for $42 per brokerage fees and other costs of...
During your interview process for the position of program manager for Booker, Tee, and How you are asked to explain the relationship between cost, schedule, and performance? what is your answer to...

Why are options on interest rate futures contracts preferred to options on cash instruments in hedging interest

Question:

Step by Step Answer:

Futures options are preferred to options on the underlying bo...View the full answer

Financial Institutions Management A Risk Management Approach

Students also viewed these Banking questions