Case Study: MASUMBUKO Corporation's Financial Instruments

Introduction:

MASUMBUKO Corporation is a multinational company engaged in various business

activities. The company utilizes a range of financial instruments to manage risks and optimize

its financial position. As part of a financial analysis, the following details have been gathered

for the fiscal year ending December $31,2023$:

Derivative Instruments:

MASUMBUKO Corporation holds interest rate swaps to hedge against fluctuations in interest

rates on its variable$-$rate debt.

The fair value of these interest rate swaps increased during the year.

REQUIRED

$($a$)$ Why does MASUMBUKO Corporation use interest rate swaps?

$($b$)$ Explain the impact of the increase in the fair value of the interest rate swaps.

$($c$)$ What are the potential risks associated with financial instruments for MASUMBUKO

Corporation?

$($d$)$ How should MASUMBUKO Corporation manage these risks effectively?