Questions from Financial Markets

Q: Commercial banks use some funds to purchase securities and other funds to

Commercial banks use some funds to purchase securities and other funds to make loans. Why are the securities more marketable than the loans in the secondary market?

Q: How does the price of a financial futures contract change as the

How does the price of a financial futures contract change as the market price of the security it represents changes? Why?

Q: Explain why some futures contracts may be more suitable than others for

Explain why some futures contracts may be more suitable than others for hedging exposure to interest rate risk.

Q: Will speculators buy or sell Treasury bond futures contracts if they expect

Will speculators buy or sell Treasury bond futures contracts if they expect interest rates to increase? Explain.

Q: Explain how purchasers of financial futures contracts can offset their position.

Explain how purchasers of financial futures contracts can offset their position. How is their gain or loss determined? What is the maximum loss to a purchaser of a futures contract?

Q: Explain how sellers of financial futures contracts can offset their position.

Explain how sellers of financial futures contracts can offset their position. How is their gain or loss determined?

Q: Assume a financial institution has more rate-sensitive assets than rate

Assume a financial institution has more rate-sensitive assets than rate-sensitive liabilities. Would it be more likely to be adversely affected by an increase or decrease in interest rates? Should it...

Q: Assume a financial institution has more rate-sensitive liabilities than rate

Assume a financial institution has more rate-sensitive liabilities than rate-sensitive assets. Would it be more likely to be adversely affected by an increase or a decrease in interest rates? Should i...

Q: A U.S. insurance company purchased British 20-year

A U.S. insurance company purchased British 20-year Treasury bonds instead of U.S. 20-year Treasury bonds because the coupon rate was 2 percentage points higher on the British bonds. Assume that the in...

Q: Why do some financial institutions remain exposed to interest rate risk,

Why do some financial institutions remain exposed to interest rate risk, even when they believe that the use of interest rate futures could reduce their exposure?