A bank with short-term floating-rate liabilities and long-term fixed-rate assets could hedge their interest rate risk by I. buying a cap. II. buying a T-bond futures contract. III. selling a T-bond futures contract. IV. entering into a swap agreement to pay a fixed rate and receive a variable rate.

The bank can do option II

Explanation:

Floating liabilities refer to those short term debts that must be repaid.

The banks can mitigate their interest rate risks by doing  the following:

This makes option ii the correct answer

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