On-Balance-Sheet Hedging Involves Making Changes in the On-Balance-Sheet Assets and Liabilities

question 97

True/False

On-balance-sheet hedging involves making changes in the on-balance-sheet assets and liabilities to protect FI profits from FX risk without the use of derivative securities.

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Definitions:

Interest Method

A technique used in finance to calculate the interest portion of a loan or investment payment, often employed in amortizing a bond discount or premium.

Effective Interest Method

A method of calculating the amortized cost of a bond and the amount of interest expense over the life of the bond by applying the effective interest rate to the carrying amount of the bond.

Accrued Interest

Interest that has been earned but not yet received or recorded as payment, often associated with loans or bonds.

Bond Sinking Fund

A fund set up by an issuer of a bond in which money is saved over time for the sole purpose of redeeming or buying back some or all of the bonds prior to their maturity.