If a firm has invested in corporate bonds, it may engage in a financial futures contract in order to protect itself from
A) declining interest rates.
B) rising interest rates.
C) inflation.
D) changes in hedging activities.

Question

Quizplus · Accepted Answer

If interest rates rise, the value of existing corporate bonds decreases. By engaging in a financial futures contract, the firm can lock in a future interest rate, effectively reducing the risk of the value of their portfolio decreasing due to rising rates.

If a Firm Has Invested in Corporate Bonds, It May