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Based on your understanding of forward and futures contracts, identify the differences between the two: In these contracts, there are no cash flows exchanged until
Based on your understanding of forward and futures contracts, identify the differences between the two: In these contracts, there are no cash flows exchanged until maturity. Because there is an organized market for these contracts, they are highly liquid. For the execution of these contracts, brokers require both parties to maintain margin accounts or performance bonds to ensure that payments are made when the contract matures. Which of the following are used to hedge against fluctuating interest rates, stock prices, and exchange rates? Financial futures Commodity futures Fitcom Corp. is planning to build a new production facility that will cost $10 million. It plans to finance this project with 10-year bonds that would carry a 7% interest rate if they were issued today. However, the company does not need the money for six months. Which of the following actions would hedge Fitcom Corp. against an increase in interest rates? Take a long position in interest rate futures Take a long position in foreign exchange futures Take a short position in interest rate futures Take a short position in foreign exchange futures
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