In each of the following cases, indicate whether it would

be appropriate for an FI to buy or sell a forward contract to

hedge the appropriate risk. $($LG $24-1)$

a$.$ A commercial bank plans to issue CDs in three months.

b$.$ An insurance company plans to buy bonds in two months.

c$.$ A thrift is going to sell Treasury securities next month.

d$.$ A U$.$S$.$ bank lends to a French company; the loan is pay$-$

able in euros.

e$.$ A mutual fund plans to sell its holding of stock in a German

company.

f$.$ A finance company has assets with a duration of $6$ years

and liabilities with a duration of $13$ years.Q$1.$ In each of the following cases, indicate whether it would be appropriate for an FI to $($i$)$ buy a put or a call option to hedge the appropriate risk. a$.$ A commercial bank plans to issue CDs in three months. b$.$ A U$.$S$.$ bank lends to a French company; the loan is payable in euros. c$.$ A finance company has assets with a duration of $6$ yrs$,$ liabilities with a duration of $13$ yrs$.$ Q$2.$ How can caps, floors be used to hedge interest rate risk? Q$3.$ A bank buys a $$100$ million notional call option of $9\%$ interest rate at a premium of $0\mathrm{.}65\%$ of face value. $($i$)$ If interest rate rises to $11\%,$ what is the net profit for the bank? $($ii$)$ If interest rate falls to $8\%,$ what is the net profit for the bank? $($iii$)$ Give an example when the bank uses this call option as a hedge on the balance sheet.