The floating interest rates are usually linked to some open market interest rates such as LIBOR and EURIBOR and can affect the interest expenses of a company over time. If the company borrows according to these interest rates there is always a risk that the interest rate of the underlying benchmark could suddenly change. This risk can be minimized by buying or selling in the interest rate futures market to hedge the current position.
This futures contract is also settled when the company retires its debt at maturity. The derivatives markets are also used for hedging and generating profits from speculation as seen in long straddle, short straddle, long strangle and short strangle. All four of these are the strategies available to investors to benefit from the options market. If the investor predicts a change in the market or it is expected the market will remain unchanged any four of these strategies can be used.
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