A type of financial derivative that would allow a firm to hedge against changes in interest rates over a 5-year period is a(n) ____.
A) interest rate futures contract
B) commodity soup
C) interest rate swap
D) interest rate put option

Question

Quizplus · Accepted Answer

An interest rate swap would be the best choice as it allows a firm to trade fixed interest rate payments for floating interest rate payments (or vice versa) with another party. This would provide protection against changes in interest rates over the 5-year period. Interest rate futures contracts and options are shorter-term derivatives, typically covering a period of months rather than years. Commodity soup is not a financial derivative.

A Type of Financial Derivative That Would Allow a Firm