Significant negative shock to interest rates

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As a manager of a FI you consider implementing one of the following strategies: to use forward contracts to hedge interest rate risk or to use futures contracts for hedging interest rate risk. Your risk analytic predicts a significant negative shock to interest rates and relatively stable forecast yields. Durations for these strategies are the same.

a) Which strategy would you choose if current yield on bonds is the same as the current level of interest rates? Justify your answer.

b) If initially you can buy or sell as many futures as you want would you choose a different strategy in part a)?

Reference no: EM132602444

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