In each of the following cases, identify what risk the manager of an FI faces and whether the risk should be hedged by buying a put or a call option....

 In each of the following cases, identify what risk the manager of an FI faces and whether the risk should be hedged by buying a put or a call option. 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 plans to sell Treasury securities next month. d. A U.S. bank lends to a French company with the loan payable in euros. e. A mutual fund plans to sell its holding of stock in a British company. f. A finance company has assets with a duration of six years and liabilities with a duration of 13 years.  5. Derive the upper and lower bound for a six‐month call option with strike price K=$75 on stock XYZ. The spot price is $80. The risk‐free interest rate (annually compounded) is 10%. If the option price is below the lower bound, describe the arbitrage strategy.  6. A European call option and put option on a stock both have a strike price of $20 and an expiration date in 3 months. Both sell for $3. The risk‐free interest rate is 10% per annum. Current stock price is $19. Identify the arbitrage opportunity open to a trader.  7. Calculate the option value for a one‐period European put option with a current stock price of $100, a strike price of $95. The one period risk free rate is 5%. The stock price can either go up or down by 10% at the end of one period.