Question
Assume today is the 4th June and you intend to issue a single 180 day bank accepted bill on the 12th August. You decide to
Assume today is the 4th June and you intend to issue a single 180 day bank accepted bill on the 12th August. You decide to take a position in a bank bill futures contract to hedge the interest rate risk that you face between now and the 12th August. What is the nature of the interest rate risk you face, and how will you use futures to hedge that risk?
A. My risk is that short-term rates will fall; I will hedge by buying bank bill futures.
B. My risk is that short-term rates will fall; I will hedge by selling bank bill futures.
C. My risk is that short-term rates will rise; I will hedge by selling bank bill futures.
D. My risk is that short-term rates will rise; I will hedge by buying bank bill futures.
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