EBK THE ECONOMICS OF MONEY, BANKING AND
EBK THE ECONOMICS OF MONEY, BANKING AND
4th Edition
ISBN: 9780100668201
Author: Mishkin
Publisher: YUZU
Question
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Chapter 14, Problem 18AP
To determine

Suppose the pension fund you are managing is expecting an inflow of funds of $100 million next year, and you want to make sure that you will earn the current interest rate of 8% when you invest the incoming funds in long term bonds. How would you use the future market to do this?

Context Introduction:

Future market is a market where future contracts or commodities are sold and bought by participants for delivery on an agreed future date at a price agreed at the time of contract.

Futures contracts are derivatives which can be used to hedge risk. Hedging means offsetting the probability of loss which occurs from fluctuations in the price of currencies.

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