Explanation:

A pay-fixed, receive-floating interest rate swap is the appropriate hedge for a long fixed-income position when the concern is rising interest rates.

The manager is long 10-year Treasury Notes, so the position loses value if rates rise.
In a pay-fixed, receive-floating swap, the floating leg tends to increase when market rates rise, helping offset the loss on the bond position.
This creates a hedge against rising rates.

B: Receive-fixed, pay-floating benefits from falling rates, not rising rates.
C: A long position in Treasury note futures would generally not hedge a long bond position against rising rates.
D: A call option is not the standard hedge described here; the question asks for a direct hedge against rising-rate exposure.

Correct answer: A

Q-1 GARP 2010.P1.12. The yield curve is upward sloping, and a portfolio manager has a long position in 10-year Treasury Notes funded through overnight repurchase agreements. The risk manager is concerned with the risk that market rates may increase further and reduce the market value of the position. What hedge could be put on to reduce the position's exposure to rising rates?

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Last updated: April 18, 2026 at 11:32

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

75.0%

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

25.0%

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

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

Financial Risk Manager Part 1