A lender obtains funds from depositors by offering short-term interest rates on savings accounts. The lender uses these funds to make longer-term installment loans. Explain how the lender might make use of the futures market to hedge the risk taken.
What will be an ideal response?
The lender faces the risk that short-term interest rates will increase. The lender can hedge this risk by selling futures contracts for U.S. Treasury bills that are also short term. If interest rates increase, the lender will profit from the futures contracts.
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Which of the following is a difference between a first-price sealed-bid auction and a Dutch auction?
A) The highest bidder wins in a first-price sealed-bid auction while the second-highest bidder wins in a Dutch auction. B) The second-highest bidder wins in a first-price sealed-bid auction while the highest bidder wins in a Dutch auction. C) Bids are placed privately in a first-price sealed-bid auction while bids are placed publicly in a Dutch auction. D) Bids are placed one after another in a first-price sealed-bid auction while bids are placed simultaneously in a Dutch auction.
The government can safely take on more debt
a. as long as private firms are taking on more debt b. as long as the debt involves no interest payments c. if GDP is growing faster than the debt is growing d. if the interest rate is below 3 percent e. as long as the debt is growing by less than 3 percent per year
Unions contribute to
a. frictional unemployment but not the natural rate of unemployment. b. the natural rate of unemployment but not frictional unemployment. c. both frictional unemployment and the natural rate of unemployment. d. neither frictional unemployment nor the natural rate of unemployment.
Which of the following is NOT a characteristic of a monopoly?
A. A great deal of political power B. No close substitute products C. The ability to make an economic profit in the long run D. Operating at the lowest point on the ATC curve