In late January 2014, The Union Cosmos Company is considering the sale of €100 million in 10-year debentures that will probably be rated AAA like the firm's other bond issues. The firm is anxious to proceed at today's rate of 10.5 per cent. As treasurer, you know that it will take until sometime in April to get the issue registered and sold. Therefore, you suggest that the firm hedge the pending issue using Treasury bond futures contracts each representing €100,000. Explain how you would go about hedging the bond issue?
A) Sell 1000 contracts
B) Buy 1000 contracts
C) Sell 100 contracts
D) Sell 10 000 contracts
E) None of the above

Question

In late January 2014, The Union Cosmos Company is considering the sale of €100 million in 10-year debentures that will probably be rated AAA like the firm's other bond issues. The firm is anxious to proceed at today's rate of 10.5 per cent. As treasurer, you know that it will take until sometime in April to get the issue registered and sold. Therefore, you suggest that the firm hedge the pending issue using Treasury bond futures contracts each representing €100,000.  Explain how you would go about hedging the bond issue?
A) Sell 1000 contracts 
B) Buy 1000 contracts 
C) Sell 100 contracts 
D) Sell 10 000 contracts 
E) None of the above

Quizplus · Accepted Answer

The Answer is A

In Late January 2014, the Union Cosmos Company Is Considering