An FI has reduced its interest rate risk exposure to the lowest possible level by selling sufficient futures to offset the risk exposure of its whole balance sheet or cash positions in each asset and liability.The FI is involved in
A)microhedging.
B)selective hedging.
C)routine hedging.
D)overhedging.
E)speculation.

Question

Quizplus · Accepted Answer

The FI has hedged its entire balance sheet or cash positions, indicating that this is a routine hedging practice. Microhedging involves hedging specific individual assets or liabilities. Selective hedging involves hedging some positions but not others based on certain criteria. Overhedging would involve hedging to an excessive degree, which is not indicated in the scenario. Speculation would involve taking a position in the market in anticipation of potential gains, rather than hedging to manage risk exposure.

An FI Has Reduced Its Interest Rate Risk Exposure to the Lowest