An Insurance Company Committed Itself During the Month of March

Short Answer

An insurance company committed itself during the month of March to buying a block of home mortgages at a fixed price from a mortgage banker in September. The mortgages have a face value of $10 million. The insurer has recently prepared a forecast that indicates that mortgage interest rates will rise between now and September by a full percentage point. What kind of futures transaction would you recommend to protect the insurance company against a sizable loss on its mortgage commitment, particularly if it has to sell the mortgages shortly after they are taken into its portfolio. Indicate specifically what buy and sell transactions you would undertake in the futures market. What futures contract would you most likely use? Why? What options contract seems best and why?