tion) The liquidity ind portfolio is 60%. Which portfolio has a higher liquidity

Question

tion) The liquidity ind portfolio is 60%. Which portfolio has a higher liquidity risk in fire sales? ex of a government bond portfolio is 90%, and the liquidity index of an equity A. Government bond portfolio B. Equity portfolio A bank wishing to avoid lower interest income interest rate risk. on loans would be most likely to to hedge A. Buy call options B. Buy put options Based on the repricing (or funding gap) model, when interest rate is forecasted to rise in about a year, what should a bank do? A. Make the gap positive and large. (This is a risky and speculative approach because the forecast can be wrong.) B. Make the gap zero. (This is an immunization approach.) A retail bank with a traditional business model (i.e., borrowing short and lending long) tends to have leverage-adjusted duration gap. A. Positive B. Negative (10) To hedge interest rate risk for financial institutions, we can use forwards, futures, or options; b we cannot use swaps because there are no interest rate swaps available. The state but A. True B. False

Explanation / Answer

6.

liquidity index is defined as number of days it take to conevrt the security in to Cash. A higher liquidity index mean low liquidity and lower liquidity index mean higher liquidity. Since, liquidity index for equity portfolio is 60% than 90% for government bond, so equity portfolio is more liquid than government bond.

So, equity portfolio has more liquidity.

7.

A bank wishing to avoid lower interest income on loan would be most likely to purchase Call option to hedge the interest rate risk. When interest rate decrease then proce of assets increase, so bank can offset the loss due to low interest rate by increase in value of assets.

Buy Call option is correct answer.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.