A Failure to Use Financial Instruments to Cover Existing Exposures

question 55

True/False

A failure to use financial instruments to cover existing exposures (i.e. active management) is a form of speculation.

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Definitions:

Yield Rate

The income return on an investment, such as the interest or dividends received, expressed annually as a percentage based on the investment's cost, current market value, or face value.

Strip Bond

A debt security that has had its principal and coupon payments detached and sold separately.

Compounded Semi-annually

Interest calculated on the initial principal and the interest that has been added on a bi-annual basis.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.