An accommodation company located in Germany is aiming to hedge against potential increases in interest rates. To achieve this, the company has selected futures contracts on 10-year German government bonds as their hedging tool. What type of position (long or short) should the company take in these futures contracts, and what is the reasoning behind this decision?

Exam-Like

Take a long position in the futures because rising interest rates lead to rising futures prices.

14.6%

Take a long position in the futures because rising interest rates lead to declining futures prices.

11.2%

Take a short position in the futures because rising interest rates lead to rising futures prices.

12.4%

Take a short position in the futures because rising interest rates lead to declining futures prices.

61.8%

Financial Risk Manager Part 1