A company with a short term commercial paper liability at an interest rate of 3% must refinance this liability in 90 days, and wants to hedge against the possibility that interest rates will be higher at that time.
If the interest rate on U.S. Treasury bills is highly correlated with the rate on commercial paper, which investment is an effective hedge?
A) Purchase call options on U.S. Treasury bills
B) Take a long position in U.S. Treasury bill futures
C) Swap the fixed interest on the commercial paper for a floating interest rate obligation tied to the U.S. Treasury bill rate
D) Take a short position in U.S. Treasury bill futures.