Hedging Usually Takes the Form of Closing an Exposure Directly

question 22

True/False

Hedging usually takes the form of closing an exposure directly.

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Definitions:

Higher-risk Tranches

Segments of a debt instrument (like a mortgage-backed security) that have a greater risk of default but offer higher returns to compensate.

Yield Curve

A graph showing the relationship between bond yields and their maturities, indicating the differences in yield over various durations.

Positive Slope

In a graph, a line that goes up to the right, indicating a positive relationship or increase between two variables.

Liquidity Preference Theory

A theory that suggests interest rates are determined by the supply and demand for money, with people preferring liquidity over committing to long-term investments.