A corporation will be issuing bonds in 6 months and the Treasurer is concerned about unfavorable interest rate moves in the interim.The best way for her to hedge the risk is to _________________.
A) buy T-bond futures
B) sell T-bond futures
C) buy stock index futures
D) sell stock index futures

Question

Quizplus · Accepted Answer

Selling T-bond futures will create a hedge against unfavorable interest rate moves because if interest rates rise, the value of the futures contract will fall, offsetting the potential loss the corporation could experience on their bond issue.

A Corporation Will Be Issuing Bonds in 6 Months and the Treasurer