An FI Has Reduced Its Interest Rate Risk Exposure to the Lowest

question 14

Multiple Choice

An FI has reduced its interest rate risk exposure to the lowest possible level by selling sufficient futures to offset the risk exposure of its whole balance sheet or cash positions in each asset and liability.The FI is involved in

• A)microhedging.
• B)selective hedging.
• C)routine hedging.
• D)overhedging.

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Definitions:

Neglected-firm Effect

The phenomenon where lesser-known or less-followed stocks generate higher abnormal returns than their well-followed counterparts.

Excess Returns

The return on an investment that exceeds a benchmark or risk-free rate, indicating the additional compensation for taking on risk.

Passive Fixed-income Indexes

Indexes that track a set of fixed-income securities, used as benchmarks for passive bond investment strategies.

Actively Managed Bond Funds

Bond investment funds where fund managers actively make decisions on buying and selling bonds to outperform the market or reach specific investment goals.