Suppose You Are Currently in the Long Position of a Long-Term

question 6

Multiple Choice

Suppose you are currently in the long position of a long-term bond.In this case,to hedge against a capital loss,you would enter into a ________ contract to ________ a long-term bond in the future.

• A)interest-rate forward;sell
• B)interest-rate forward;buy
• C)exchange-rate forward;buy
• D)exchange-rate forward;sell

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Definitions:

Norms

Unwritten rules and expectations that guide behavior within a society or social group.

Lost Profit

Revenue that a business could have gained but was unable to due to some disrupting event or action.

Sales Contract

A legally binding agreement between a seller and a buyer specifying the terms of sale for goods or services.

Market Price

Market price is the current price at which an asset or service can be bought or sold in the open market.