A financial institution that purchases a particular futures contract and later sales the same contract back...
A financial institution that purchases a particular futures contract and later sales the same contract back is:
- Trying to protect against possible rising deposit and other borrowing costs.
- Executing a long hedge.
- Executing a short hedge.
- Both (a) and (b)
Homework Answers
A financial institution that purchases a particular futures contract and later sales the same contract back is Executing a long hedge and trying to avoid lower than expected yields on from loans and securities.
When a financial institution is executing short hedge then only they are trying to avoid declining asset values and rising borrowing costs.
Hence, option (b) is correct.
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