Futures contracts are the primary security that insurance companies and banks use to hedge interest rate risk prior to originating mortgages.

Question

Quizplus · Accepted Answer

Insurance companies and banks primarily use interest rate swaps, not futures contracts, to hedge interest rate risk prior to originating mortgages. Interest rate swaps allow these institutions to exchange variable interest rate payments for fixed-rate payments, thus managing their exposure to interest rate fluctuations.

Futures Contracts Are the Primary Security That Insurance Companies and Banks