A corporation planning to sell long-term bonds two months from now can protect itself against a rise in interest rates by selling or taking ________ in interest rate futures now.

Question

Quizplus · Accepted Answer

To protect against a rise in interest rates, a corporation can take a short position in interest rate futures now. This means that if interest rates do rise, the corporation can make a profit on the futures contract which can help offset the increase in borrowing costs when they issue the long-term bonds later on. A long position or aggressive/active position would not be appropriate in this scenario as they would leave the corporation exposed to an increase in interest rates. A passive/neutral position would not provide any protection against rising interest rates.

A Corporation Planning to Sell Long-Term Bonds Two Months from Now