B– fine understanding of interest rate derivatives. However, let us assume you are working for an investmentfirm and the firm has invested $50 million in bond of a corporation such as theIBM. Your research director expects the interest rate to go up in the comingmonths. How can you use a derivative instrument such as the T-note futurescontract to hedge against the higher interest rate expectations? Please bespecific about the number of futures contracts you use.
B– thank you for your discussion. However, as you know, the Lehman Brothers hadtriple A-ratings on Wednesday September 13, 2008 but on Friday September 15,2008, the firm announced bankruptcy. Although the firm sent its financialstatements to the SEC like other investment banks or corporations but many weresurprised to find out about this event. Could you do some research and explainhow this credit risk was not detected earlier, even by the credit ratingagencies?