Market participants refer to forward rates as being hedgeable rates. For example, by buying the one-year security, the investor is able to hedge the six-month rate that will occur six months from now.

Question

Quizplus · Accepted Answer

This statement is true. Forward rates can be used by market participants to hedge future interest rate risk by locking in a rate now for a future period of time. By buying a security at the current forward rate, investors can protect against the risk of interest rates rising in the future.

Market Participants Refer to Forward Rates as Being Hedgeable Rates