A company sells $1,000,000 face value interest rate futures (120-day Treasury bills) at 91, as an effective hedge of its firm commitment to roll over its variable rate debt in 120 days. The interest rate futures increase in value to 92.5. How is this reported by the company?

Question

Quizplus · Accepted Answer

There is a loss on the futures, reported in income, offset by a gain on the firm commitment due to a decline in interest rates, also reported in income.

A Company Sells $1,000,000 Face Value Interest Rate Futures (120-Day