OmarAdnan

If you are long a bond, that means you have lent it out and want the rates to go up. So think in terms of interest rates, not bond prices.

There was actually as similar very tricky Q like this on last year's exam. They told you you had a long gold position and asked what you would do if you wanted to hedge the position, and then what your payoff would be. Key was to understand that if you are long an asset you go short to hedge.

hassan

buy a floor?

CP

Swanand

If you are short a floating rate bond, that means you want the interest rate to go down.

If you want to hedge the position, that means you are afraid the interest rate will go up.

So I think you would buy an interest rate cap. This way, there is a cap as to how high rates can go after which point you won't lose any more money. All you have to give up for this comfort is a premium fee.

jarobi04

Agree with NY, exact same reasoning.