While investment managers can alter the interest rate sensitivity of their portfolios with cash market instruments, a quick and inexpensive means for doing so (on either a temporary or permanent basis) is to use ________.

Question

Quizplus · Accepted Answer

Futures contracts provide a quick and inexpensive means for investment managers to alter the interest rate sensitivity of their portfolios on either a temporary or permanent basis. They allow investors to take a view on the direction of interest rates and take a corresponding position in the futures contract. Because futures are highly liquid and actively traded, they provide an efficient means for managing interest rate risk. Bond indentures, stock index contracts, and interest rate treaties do not provide the same degree of flexibility and efficiency in managing interest rate risk.

While Investment Managers Can Alter the Interest Rate Sensitivity of Their