The Financial Manager of a Firm Has a Variable Rate

question 3

Multiple Choice

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

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Definitions:

Domination-Based

Relating to or characterized by the exercise of control or power over others in a way that restricts individual freedom.

Competitive

Characterized by or involving competition; striving to win or be more successful than others.

Fear of Punishment

The apprehension or anxiety experienced over the prospect of receiving a penalty for an action or behavior.

Inefficient Means

Methods or processes that do not achieve their intended outcome in the most effective, timely, or resource-conserving manner.