Sample interview questions: Can you discuss the role of derivatives in managing inflation risk?
Sample answer:
-
Inflation Swaps: Inflation swaps allow parties to exchange fixed cash flows for floating cash flows linked to an inflation index, such as the Consumer Price Index (CPI). This enables companies to hedge against the risk of rising costs by locking in a fixed price for future purchases or revenues.
-
Commodity Derivatives: Commodity derivatives, such as futures, options, and swaps, provide a means for businesses to manage the price risk associated with commodities like oil, gas, and agricultural products. By using these instruments, companies can lock in prices for future purchases or sales, reducing the impact of price fluctuations.
-
Interest Rate Derivatives: Interest rate derivatives, including forwards, futures, options, and swaps, allow companies to man… Read full answer