ABC Inc. has to borrow money to undertake a seasonal business expansion in six months time. They will need additional working capital funding for six months and wish to hedge themselves against a rise in interest rates in six month's time. They should

Question

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A 6x12 FRA allows ABC Inc. to lock in the interest rate six months from now, thereby hedging against a rise in interest rates. Taking a long position in the FRA would provide them with protection if interest rates increase. Options A, C, and D do not create as reliable a hedge against a rise in interest rates.

ABC Inc Has to Borrow Money to Undertake a Seasonal Business