Answer the following: (LG 24-4) a. What are the two ways to use call and put options

Question:

Answer the following: (LG 24-4)

a. What are the two ways to use call and put options on T-bonds to generate positive cash flows when interest rates decline?

b. When and how can an FI use options on T-bonds to hedge its assets and 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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