A Hedge with Futures Contracts Increases Volatility in Profit Gains

question 22

True/False

A hedge with futures contracts increases volatility in profit gains on both the upside and downside of interest rate movements, whereas in comparison, the hedge with the put option contract completely offsets the gains but only partially offsets the losses.

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Definitions:

Intraperiod Tax Allocation

The apportionment of income taxes within a financial reporting period to different components of net income and other comprehensive income.

Valuation Allowance

A contra-account used to reduce the carrying value of deferred tax assets if it is more likely than not that some portion will not be realized.

U.S. GAAP

Generally Accepted Accounting Principles as practiced in the United States, a framework of accounting standards, principles, and procedures.

Reversing Temporary Difference

A temporary difference that will result in deductible amounts in future years, affecting taxable income.