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Question 3 At the beginning of 1995, General Motor's pension funds were under- funded (i.e., the value of their liabilities exceeded the value of their

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Question 3 At the beginning of 1995, General Motor's pension funds were under- funded (i.e., the value of their liabilities exceeded the value of their assets) by $9.3 billion. Even though the company injected $10.4 billion during the year, at the end of 1995 the pension funds were still underfunded. Knowing that interest rates dropped during 1995, explain what must have happened. Describe a strategy with which GM could have hedged its interest rate risk and discuss the limitations of this strategy

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