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The financial manager of a firm has a variable rate loan outstanding. If she wishes to protect the firm against an unfavorable increase in interest rates she could ___________.
A) sell an interest rate futures contract of a similar maturity to the loan.
B) buy an interest rate futures contract of a similar maturity to the loan.
C) swap the adjustable rate loan for another of a different maturity.
D) none of the above

Respuesta :

marciahahn2

Answer:

C) swap the adjustable rate loan for another of a different maturity.

Explanation:

batolisis

Answer:

Buy an interest rate futures contract of a similar maturity to the loan ( B )

Explanation:

The financial manager having a variable rate loan outstanding shows that the increase in the interest rate is a possibility since the loan is a variable rate loan and if the the interest rate increases the company will be a loss. in order to hedge this scenario, the Financial manager should buy an interest rate futures contract that has a similar maturity to the variable rate loan so that any loss incurred with the increase in interest rate will be offset by the gains in the   future contract bought.

swapping the loan for another would only be efficient if they have similar maturity time.

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