Assignment:
Explain how futures contracts could be used to hedge a bond portfolio against the risk of rising interest rates. Then explain how futures could be used by both exporters (due to receive foreign currencies) and importers (due to pay in foreign currencies) to hedge against their foreign-exchange exposure.
A bond portfolio can be hedged against the risk of rising interest rates by using an interest rate futures contract to partially or totally reduce interest rate risk without disturbing the underlying asset.
An importer would hedge against foreign-exchange exposure by buying a sufficient number of futures contracts to create a hedge. The importer would then sell the contracts at maturity and take delivery of the foreign currency. The foreign currency received from the contracts would pay for the imports.
An exporter would hedge against foreign-exchange exposure by buying futures contracts to offset changes in exchange rates while waiting to receive foreign currencies.