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Question
KKR issues a $10 million 18-month floating rate note priced at LIBOR plus 400 basis points. What is KKR's interest rate risk exposure and how can it be hedged?
A. KKR is exposed to interest rate increases; short hedge by buying put options.
B. KKR is exposed to interest rate increases; long hedge by buying call options.
C. KKR is exposed to interest rate decreases; long hedge by buying call options.
D. KKR is exposed to interest rate decreases; short hedge by buying put options.
E. KKR is exposed to interest rate increases; short hedge by buying call options.
Answer
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