Suppose a company is paying a borrowing rate tied to the T-bond yield. It wants

Question

Suppose a company is paying a borrowing rate tied to the T-bond yield. It wants to hedge against its borrowing rate increase in the future but it wants to keep its rate, if the rate goes down. Which interest rate derivative should it use? a. Eurodollar futures option    b. T-bond futures option    c. Interest rate floor    d. Swaption

Suppose a company is paying a borrowing rate tied to the T-bond yield. It wants to hedge against its borrowing rate increase in the future but it wants to keep its rate, if the rate goes down. Which interest rate derivative should it use? a. Eurodollar futures option    b. T-bond futures option    c. Interest rate floor    d. Swaption

Explanation / Answer

The correct asnwer is option (B) which is T-bond future option.

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