You Want to Hedge Your Deposit Against Falling Interest Rates

question 371

Multiple Choice

You want to hedge your deposit against falling interest rates. Which of the alternatives below are appropriate for this purpose?

• A) Selling a Money Market Future and/or selling a Forward Rate Agreement
• B) Buying a Money Market Future and/or buying a Forward Rate Agreement
• C) Selling a Money Market Future and/or buying a Forward Rate Agreement
• D) Buying a Money Market Future and/or selling a Forward Rate Agreement

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Definitions:

Natural Rate of Unemployment

The level of unemployment consistent with sustainable economic growth, where the labor force and job vacancies are in equilibrium.

Monetary Policy

A strategy used by a country's central bank to control the money supply in the economy, often targeting inflation or interest rates to ensure economic stability.

Phillips Curve

An economic theory proposing an inverse relationship between unemployment and inflation, suggesting that lower unemployment comes with higher inflation and vice versa.

Expansionary Monetary Policy

A policy by the central bank to increase the money supply and decrease interest rates to stimulate economic growth.