One of the significant disadvantages of using futures contracts to hedge against interest rate risk is the high commissions that must be paid to brokers.

Question

Quizplus · Accepted Answer

The statement is not true. Futures contracts typically have lower transaction costs than other hedging methods, such as options, and there are no commissions involved in trading in futures contracts. Futures contracts are traded on regulated exchanges, and the cost of trading is built into the quoted price of the contract. However, there may be additional costs associated with margin requirements and other fees.

One of the Significant Disadvantages of Using Futures Contracts to Hedge