Financial Risk Manager Part 1

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Explanation:

A pay fixed / receive floating interest rate swap is the better hedge against rising rates for a long Treasury note position.

A long Treasury note position loses value when interest rates rise.
A pay-fixed swap generally gains value when rates rise, because the fixed payments become less attractive relative to market rates.
Therefore, it offsets the loss on the bond position when rates increase.

Receive fixed / pay floating has the opposite exposure: it benefits when rates fall, so it would not be the best hedge against rising rates.
A long Treasury note futures position would add further exposure in the same direction as the cash bond.
A call option on Treasury note futures is not the standard direct hedge for this rate-risk exposure.

So the correct answer is A.

Explanation:

A pay fixed / receive floating interest rate swap is the better hedge against rising rates for a long Treasury note position.

A long Treasury note position loses value when interest rates rise.
A pay-fixed swap generally gains value when rates rise, because the fixed payments become less attractive relative to market rates.
Therefore, it offsets the loss on the bond position when rates increase.

Receive fixed / pay floating has the opposite exposure: it benefits when rates fall, so it would not be the best hedge against rising rates.
A long Treasury note futures position would add further exposure in the same direction as the cash bond.
A call option on Treasury note futures is not the standard direct hedge for this rate-risk exposure.

So the correct answer is A.

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MManit

Last updated: April 18, 2026 at 11:32

Enter into a 10-year pay fixed and receive floating interest rate swap.

100.0%

Enter into a 10-year receive fixed and pay floating interest rate swap.

0.0%

Establish a long position in 10-year Treasury Note futures.

Buy a call option on 10-year Treasury Note futures.