Assume a Corporation Is Receiving a Large Amount of Funds

question 45

Multiple Choice

Assume a corporation is receiving a large amount of funds in the near future. The company plans to use the funds to purchase municipal bonds. Also assume that the company is concerned that interest rates will decrease before the purchase date, which would make the municipal bonds more expensive. In order to hedge against this possibility, the company should ____ MBI futures contracts. If interest rates decrease, the futures contract will generate a ____.

• A) sell; loss
• B) purchase; gain
• C) purchase; loss
• D) sell; gain
• E) none of the above

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Definitions:

Organization

An entity comprising multiple people structured and managed to meet a need or to pursue collective goals.

Rationale

The underlying reason or logical basis for a decision, action, or belief.

Immediate Response

A prompt or quick reaction to a request, question, or action, often expected in real-time communications.

Manager

An individual responsible for controlling or administering all or part of a company or similar organization, overseeing and guiding the work of others.