11) The most important derivative instruments are: A) U.S. Treasury bonds B) convertible stocks C) futures, options, and swaps D) the VIX and other indices 8) What is the largest category of commercial bank assets? A) loans B) reserves C) securities D) foreign exchange 9) If the value of a bank loan declines due to default, what is the corresponding reduction in a bank's balance sheet? A) Borrowings are reduced by the amount of the decline in the value of the loan. B) Capital is reduced by the amount of the decline in the value of the loan. C) Deposits are reduced by the amount of the decline in the value of the loan. D) Reserves are reduced by the amount of the decline in the value of the loan. 24) Commercial banks may use interest rate swaps to: A) hedge inflation B) decrease default risk C) reduce gap risk D) borrow reserves 6) Banks may use repurchase agreements to: A) pay their federal tax liabilities B) underwrite consumer loans C) borrow funds from financial intermediaries for liquidity D) hedge against price fluctuations on long-term bonds