Sample Essay

The interest rates pertinent with the short term borrowing of the company are linked to the EURIBOR, which means when the interest rates of EURIBOR increase so will the interest expense for the company. The company needs to minimize this risk due to fluctuations of EURIBOR and this can be done by hedging through the interest rate futures.

The company may sell in the interest rate futures market to become invulnerable to the fluctuations of EURIBOR. As the interest rates on the current price increase the futures market also changes and the company would be both on the sell side and the buy side which shall not affect the eventual outcome due to the change in interest expense for the company.

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