You are a Treasury analyst at a residential construction company. The sales division is offering to finance the purchase

[answerhappygod]

You are a Treasury analyst at a residential construction company.
The sales division is offering to finance the purchasers of
apartments currently under construction. As a result, the
construction company will be receiving cashflows from the loan. In
order to hedge the resulting interest rate risk, the treasurer
decides to enter into a $20,000,000 ten-year interest rate futures
contract on the Chicago Mercantile Exchange (CME). The
treasurer asks you to analyze the credit risk.







1. Does the treasurer buy or sell
futures?



2. What market conditions would cause this
counterparty credit exposure to the CME to increase? How
would you model that?