In June, an Investor Finds Out That in September She

question 59

Multiple Choice

In June, an investor finds out that in September she will receive $10 million to invest in three-month maturity securities.In June, the 91-day Treasury bill rate is 5.50 per cent.If the investor uses 10 T-bill futures contracts to hedge the interest rate risk, should she take a long or a short hedge? What are the returns on the futures hedge if there is no basis risk?

• A)She earns $30 000 on the short futures hedge.
• B)She earns $30 000 on the long futures hedge.
• C)She earns $7500 on the short futures hedge.
• D)She earns $7500 on the long futures hedge.

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