A Borrower Who Hedges by Selling BAB Futures Contracts

question 15

Multiple Choice

A borrower who hedges by selling BAB futures contracts:

• A)is trying to eliminate exchange rate risk
• B)will profit if the futures contracts increase in value
• C)will profit from a decrease in market yields
• D)is managing interest rate risk in the money market by locking-in a forward rate
• E)is trying to avoid the potential upside of a future physical transaction.

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Definitions:

New Owner

The individual or entity that acquires ownership or property rights in something, such as real estate or a company, often through purchase or transfer.

Land

The part of the earth's surface that is not covered by water, including any buildings, crops, or natural resources upon it, which can be owned or used.

Easement in Gross

A legal right to use another person's land for a specific, limited purpose, which is not tied to any particular piece of property.

Personal

Relating to or concerning individuals rather than groups or companies; not related to business or official matters.