To 'lock-in' a 90-day borrowing rate a hedger can:

Question

Quizplus · Accepted Answer

Buying a put option on a BAB futures contract would give the hedger the right to sell the underlying asset (in this case, the BAB futures contract) at a predetermined price (strike price) if market interest rates were to rise and cause the contract to lose value. This would effectively lock in a borrowing rate for the hedger for the duration of the option contract (in this case, 90 days). Buying a call option (choice A) or selling a call option (choice B) would not accomplish this goal, as these options give the holder the right to buy the underlying asset at a predetermined price, not sell it. Selling a put option (choice D) would give the buyer the right to sell the asset at a predetermined price, which is the opposite of what the hedger wants to accomplish.

To 'Lock-In' a 90-Day Borrowing Rate a Hedger Can