Hedging selectively only a portion of the balance sheet is an attempt to increase the return of the FI by accepting some level of interest rate risk.

Question

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Hedging selectively only a portion of the balance sheet allows a financial institution (FI) to manage its interest rate risk exposure while still maintaining the potential for higher returns. By not fully hedging, the FI accepts some level of interest rate risk, betting that the unhedged positions will benefit from favorable interest rate movements, thus potentially increasing its return.

Hedging Selectively Only a Portion of the Balance Sheet Is