You think that market interest rates are going to ﬂuctuate, but you don't know whether they will go up or down. One thing you could do to limit your risk exposure in either case would be to
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Question

Quizplus · Accepted Answer

Buying an interest rate collar would limit the risk exposure in either case of market interest rate fluctuations. An interest rate collar consists of buying an interest rate cap, which would limit the exposure to increasing interest rates, and selling an interest rate floor, which would limit the exposure to decreasing interest rates. This strategy can help to protect against significant losses caused by changes in interest rates while still allowing some flexibility for potential gains. Selling Treasury bonds (A) or options (D) and buying Treasury bond futures (E) do not provide the same level of protection against interest rate fluctuations as an interest rate collar. Buying Treasury bonds (B) may provide some protection against interest rate increases, but it would also result in losses if interest rates were to decrease.

You Think That Market Interest Rates Are Going to ﬂUctuate