Explanation:
Correct Answer: D
Explanation: D is correct. Government bond futures decline in value when interest rates rise, so the housing corporation should short futures to hedge against rising interest rates.
A, B, and C are incorrect per the explanation for D above.
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A treasurer at a German housing corporation needs to hedge against rising interest rates. The treasurer has chosen to use futures on 10-year German government bonds. Which of the following statements describes the best position in the futures that the treasurer should take?
A
Take a long position in the futures because rising interest rates lead to rising futures prices.
B
Take a long position in the futures because rising interest rates lead to declining futures prices.
C
Take a short position in the futures because rising interest rates lead to rising futures prices.
D
Take a short position in the futures because rising interest rates lead to declining futures prices.