Question: A commercial bank has issued a three-month CD in its liability portfolio. Which of the following is/are correct? a. The bank faces the risk that

A commercial bank has issued a three-month CD in its liability portfolio. Which of the following is/are correct?

a.

The bank faces the risk that interest rates will decrease.

b.

The bank should buy a call option since the decrease in interest rates will raise the price of the security underlying the call option.

c.

If interest rates increase, the CDs will rise in value resulting in a loss in equity value.

d.

a, b, and c

e.

Only a and b

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