What is overhedging?
A)Selectively hedging a proportion of an FI's balance sheet position.
B)Choosing to bear some interest rate risk as well as credit and FX risks.
C)Reducing the risk to the lowest level possible.
D)Using more hedge vehicles than is necessary to offset the risk in the cash asset.

Question

Quizplus · Accepted Answer

Overhedging refers to using more hedge vehicles than necessary to offset the risk in the cash asset. This can lead to additional costs and potentially reduce the overall effectiveness of the hedge. Therefore, option D is the best choice as it correctly defines overhedging. The other options either do not accurately define overhedging or describe other risk management strategies.

What Is Overhedging