The Advantage of Hedging an Interest Rate Exposure with Interest

question 46

Multiple Choice

The advantage of hedging an interest rate exposure with interest rate options is:

• A)a lower forward rate is 'locked-in'
• B)a higher forward rate is 'locked-in'
• C)they have a lower cost than futures
• D)the benefit of a favourable rate movement is not forgone.
• E)None of these.

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Definitions:

Dwarfism

A condition in which too little growth hormone is produced, resulting in an abnormally small stature.

Cretinism

A condition arising from a severe deficiency of thyroid hormone in infants or young children, leading to stunted physical and mental growth.

Thyroid Hormones

Chemical substances produced by the thyroid gland, crucial for metabolism regulation and normal growth and development.

Energy Production

The process of generating electricity or other forms of energy through various methods, such as burning fossil fuels, nuclear power, or harvesting renewable resources like wind and solar power.