You have issued a loan to a wealthy friend and you are expecting a large interest payment to be made three months from now, and you hedge it by buying a 2-month futures contract. If interest rates go up then Question 15 options: Futures price rises and you earn a loss Futures price falls and you earn a loss Futures price rises and you earn a profit Futures price falls and you earn a profit
You have issued a loan to a wealthy friend and you are expecting a large interest payment to be made three months from now, and you hedge it by buying a 2-month futures contract. If interest rates go up then Question 15 options: Futures price rises and you earn a loss Futures price falls and you earn a loss Futures price rises and you earn a profit Futures price falls and you earn a profit
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
You have issued a loan to a wealthy friend and you are expecting a large interest payment to be made three months from now, and you hedge it by buying a 2-month futures contract. If interest rates go up then
Question 15 options:
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Futures price rises and you earn a loss |
|
|
Futures price falls and you earn a loss |
|
|
Futures price rises and you earn a profit |
|
|
Futures price falls and you earn a profit |
Expert Solution
Interest rate future
It is a future contract of an underlying asset that pays interest. It allows the buyer and seller to lock the interest rate bearing asset's price in the future date.
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