Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However,the U.S.Treasury bonds currently are worth $28,387,500.

How can the portfolio manager use futures markets to protect against the risk exposure of rising interest rates?
A)Buy interest rate futures.
B)Sell currency futures.
C)Buy currency futures.
D)Sell interest rate futures.

Question

Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However,the U.S.Treasury bonds currently are worth $28,387,500.

How can the portfolio manager use futures markets to protect against the risk exposure of rising interest rates?
A)Buy interest rate futures.
B)Sell currency futures.
C)Buy currency futures.
D)Sell interest rate futures.

Quizplus · Accepted Answer

The portfolio manager can sell interest rate futures to protect against the risk exposure of rising interest rates. By selling interest rate futures, the manager can lock in a price for the U.S. Treasury bonds, thus protecting against potential losses in value due to rising interest rates.

Conyers Bank Holds U