If a company has floating-rate debt tied to dollar LIBOR and wants to eliminate the risk associated with changes in LIBOR, it can use all except which of the following instruments?
A) Interest rate futures.
B) Forward rate agreement.
C) Coupon swap.
D) Zero width interest rate collar.
E) All of the instruments listed above eliminate the risk of changing LIBOR.

Question

Quizplus · Accepted Answer

All the instruments listed (interest rate futures, forward rate agreement, coupon swap, and zero width interest rate collar) can be used to hedge against the risk of changing LIBOR rates. Each of these financial instruments can be structured in a way to offset the risk associated with floating-rate debt tied to LIBOR.

If a Company Has Floating-Rate Debt Tied to Dollar LIBOR