What reason might be given for not wanting to hedge the future issuance of a liability if interest rates are unusually high?
A) the margin cost will be expensive
B) you are locking in a high rate
C) transaction costs are higher
D) futures prices are lower
E) none of the above

Question

Quizplus · Accepted Answer

If interest rates are unusually high, it may not be beneficial to hedge the future issuance of a liability because it would result in locking in a high rate, potentially leading to higher costs in the long run. Hence, choice B is the best option. None of the other choices provide a suitable explanation for not hedging the future issuance of a liability when interest rates are high.

What Reason Might Be Given for Not Wanting to Hedge