[Godpleasehelpme2012]

Wiley Question –

Please can someone help explain why you sell a treasury note in the market instead of buy it to hedge against an increase in interest rates. I read the answer several times and it doesn’t make sense to me. How can you sell something in the present FIRST instead of buying it and hope to it is an effective hedge. I am completely lost. PLEASE HELP.

Here is the question: A company has a large amount of variable rate financing in one year. Management is concerned about the possibility of increases in short term rates. Which of the following would be an effective way of hedging this risk?

The answer is: Sell Treasury notes in futures market. WHY is this Right?

[Anonymous]

Sorry, I don't know the answer. But your username cracks me up. It's awesome.

[Godpleasehelpme2012]

Thanks.. Honestly, I feel so stupid when it comes to this exam. I study as hard as i can then i pray because I have finished an exam where i thought i would get something in the 90s and failed. Then another time, thought i would fail because i had the flu while taking the exam and passed. I just study and pray…

[jeff]

Check this thread out…

https://www.another71.com/cpa-exam-forum/topic/questions-about-hedging-help

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Godpleasehelpme2012]

Thanks Jeff. I have used your Ninja notes for other sections including this one and they are AWESOME!!

[ROACH]

man nvm. I had a okay explanation but Jeff's link is better.. next time.

BEC: 66 | 69 | 7/23/2013
AUD: 8/28/2013
REG:
FAR:

[Godpleasehelpme2012]

Anyway, thanks Roach for the thought!

[Author]

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