A company,worried that the cost of funds might rise during the term of their short-term borrowing,can hedge this rise by:
A) buying futures contracts on bank-accepted bills.
B) selling futures contracts on bank-accepted bills.
C) buying bank-accepted bills on the spot market.
D) increasing the amount of money that has been borrowed.

Question

Quizplus · Accepted Answer

Selling futures contracts on bank-accepted bills is a way to hedge against an increase in the cost of funds. If the cost of funds does rise, the value of the futures contracts will also rise, offsetting the increased cost. Buying futures contracts or bank-accepted bills on the spot market do not offer the same hedging benefits. Increasing the amount of money borrowed does not protect against rising costs but rather would increase the exposure to them.

A Company,worried That the Cost of Funds Might Rise During