Selective Hedging Occurs by Reducing the Interest Rate Risk by Selling

question 123

True/False

Selective hedging occurs by reducing the interest rate risk by selling sufficient futures contracts to offset the interest rate risk exposure of a portion of the cash positions on the balance sheet.

---

Definitions:

Face Value

The nominal or dollar value stated on a security or financial instrument, such as a bond or stock.

Real Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing.

Inflation Rate

The rate that reflects how the overall prices of services and goods escalate, causing a reduction in the capacity to purchase.

Treasury Bill

A short-term government security with a maturity of less than one year, sold at a discount to face value to provide a return to the holder upon maturity.