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Assume that options are used to hedge HRBs interest rate risk. For each of the cases in Part (d), state whether the risk should be
Assume that options are used to hedge HRBs interest rate risk. For each of the cases in Part (d), state whether the risk should be hedged by buying a put or a call option. Explain.
(i) HRB bank plans to issue CDs in three months. (ii) HRB plans to buy bonds in two months. (iii) HRB plans to sell Treasury securities next month. (iv) HRB has assets with duration of 4 years and liabilities with duration of 6 years.
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