1. Identify the generally accepted accounting principles that would influence your decision to use hedging strategies.

2. If on January 5 you see June S&P 500 Index contracts selling for 800, how many contracts must the bank sell to immunize its portfolio against systematic (market) risk?

3. If the S&P 500 falls by 10% between January 5 and June, what will be the change in

a. The market value of the bank's stocks?

b. The market value of the bank's index contracts described in Question 8?

c. The market value of the firm's net worth?

4. Explain how the bank would make use of forward contracts to hedge foreign exchange rate risk if they anticipate an increase in the value of the dollar relative to a foreign currency over the next six months.