The Number of Futures Contracts That an FI Should Buy

question 64

Multiple Choice

The number of futures contracts that an FI should buy or sell in a macrohedge depends on the

• A)size of its interest rate risk exposure.
• B)direction of its interest rate risk exposure.
• C)return risk trade-off from fully hedging that risk.
• D)return risk trade-off from selectively hedging that risk.
• E)All of the options.

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Definitions:

Absolute Advantage

Absolute Advantage refers to the ability of a party to produce a good or service more efficiently than its competitors, using fewer resources.

Banana Production

The agricultural cultivation and harvesting of bananas, typically in tropical and subtropical regions.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits lost by choosing one option over another.

Tractor

A tractor is a powerful motor vehicle designed for agricultural use, often used to pull farm equipment and haul goods.