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Example Shallander Enterprises sells high-risk corporate bond futures to hedge its holdings of lowrisk municipal bonds. The manager in charge of the firm's futures positions

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Example Shallander Enterprises sells high-risk corporate bond futures to hedge its holdings of lowrisk municipal bonds. The manager in charge of the firm's futures positions does not fully understand how to speculate on futures, which is why he sold-high risk futures to hedge low-risk municipal bonds. Soon after the position was taken, interest rates decrease, and consequently, bond prices increase, causing Shailander Enterprises to lose millions of dollars because of the manager's poor decision making. The spot price of oll is $54 per barrel, but the futures contract being used to hedge this position is priced at $53.97 per barrel. Blufin Technologles purchases Treasury bond futures anticipating a decrease in interest rates that would result in an increase in bond prices. The Federal Reserve unexpectedly announces an increase in the reserve requirement, which subsequently results in a decrease in bond prices. Palmetto Bank sells T-bill futures in order to hedge its holdings of corporate bonds. Just after the futures position is created, the bonds are called by the City of San Francisco, the local government that initially issued them. If interest rates suddenly decrease, Palmetto Bank will incur a loss from its futures position without a corresponding profit from its bond position

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