A financial institution confronted with a negative interest-sensitive gap could avoid unacceptable losses from rising interest rates by covering the gap with a short hedge.

Question

Quizplus · Accepted Answer

A short hedge involves selling a futures contract or taking a short position in interest rate futures to offset potential losses from rising interest rates. By doing so, the financial institution can protect itself against losses resulting from a negative interest-sensitive gap.

A Financial Institution Confronted with a Negative Interest-Sensitive Gap Could