A bank wants to use STIR futures for establishing a macro hedge for the asset portfolio. Which of the following statements is correct?
A) It is reasonable for the bank to purchase futures contracts if they expect interest rates to rise.
B) It is reasonable for the bank to take a long position in anticipation of rising rates.
C) Losses (or gains) in the value of the cash position can be largely offset by gains (or losses) in the value of the futures position
D) It is reasonable for the bank to sell futures contracts if it expects interest rates to fall

Question

Quizplus · Accepted Answer

A) It is not necessary for the bank to purchase futures contracts if they expect interest rates to rise. They can also alter the duration or allocation of the asset portfolio.
B) It is reasonable for the bank to take a long position if they expect interest rates to rise, but it is not the only option.
C) This statement is correct as a well-designed hedge using STIR futures can help offset losses or gains in the cash position. 
D) It is reasonable for the bank to sell futures contracts if they expect interest rates to fall.

A Bank Wants to Use STIR Futures for Establishing a Macro