derivative instruments:

Strip of long put options

Long BAB futures

Short BAB futures

Long TYB futures

Short TYB futures

3 x 6 FRA

6 x 12 FRA

Interest rate swap

In the four scenarios below, which is the most appropriate for achieving the stated objective?

(a) The company will be borrowing regular amounts over the next fiscal year and you are required to implement a hedging strategy that protects against rising interest rates but also retains the benefit of lower cost borrowing should interest rates fall.

(b) The company also has significant funds on term deposit maturing next month. Your objective is to re-invest the funds for a further three years, at a deposit rate that is locked in now.

(c) The company's policy is to place funds on deposit at the prevailing floating rate for the desired deposit period. You have been asked to suggest a strategy to lock in a fixed interest rate on such deposits going forward.

(d) In six months, your company will need to borrow around $5 million for a period of 180 days. The three most current BAB futures contracts expire in one, four and seven months, respectively.