A firm has invested in corporate bonds; it may engage in a financial futures contract in order to protect itself from
A) declining interest rates.
B) rising interest rates.
C) inflation.
D) changes in hedging activities.

Question

Quizplus · Accepted Answer

If the firm has invested in corporate bonds, they are vulnerable to losses if interest rates rise. A financial futures contract can be used as a hedging tool to protect against such a scenario. Therefore, the best choice is B (rising interest rates).

A Firm Has Invested in Corporate Bonds; It May Engage