Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However, the U.S.Treasury bonds currently are worth $28,387,500. How can the portfolio manager use futures markets to protect against the risk exposure of rising interest rates?
A)Buy interest rate futures.
B)Sell currency futures.
C)Buy currency futures.
D)Sell interest rate futures.
E)Sell stock market index futures.

Question

Quizplus · Accepted Answer

Selling interest rate futures would be the best choice to protect against the risk exposure of rising interest rates. By selling futures contracts, the portfolio manager can lock in a set interest rate for the future. If interest rates rise, the value of the futures contract will increase, offsetting the loss in value of the U.S.Treasury bonds. This can help stabilize the value of the portfolio despite changes in interest rates.

Conyers Bank Holds U