Question NO: 18

Elon Savings and Loan Association has a large number of 30-year mortgages with floating interest rates that adjust on an annual basis, and it obtains

Elon Savings and Loan Association has a large number of 30-year mortgages with floating interest rates that adjust on an annual basis, and it obtains most of its funds by issuing five-year certificates of deposit. It uses the yield curve to assess the market’s anticipation of future interest rates. Elon believes that expectations of future interest rates are the major force affecting the yield curve. Assume that a downward-sloping yield curve with a steep slope exists. Based on this information, should Elon consider using financial futures as a hedging technique? Explain. (LO2) 

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