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:

Job Satisfaction

The level of contentment employees feel about their work, which can affect their performance and retention.

Minimum Required Rate Of Return

The lowest acceptable rate of return on an investment, considering its risk and the opportunity cost of forgoing other investments.

Average Operating Assets

The average value of the assets that are used in the normal operations of a business, calculated over a specific period of time.

Net Operating Income

The profit generated from a company's everyday operational activities, excluding taxes and interest.