Which of the Following Is an Example of Microhedging Asset-Side

question 65

Multiple Choice

Which of the following is an example of microhedging asset-side portfolio risk?

• A)When an FI,attempting to lock in cost of funds to protect itself against a rise in short-term interest rates,takes a short position in futures contracts on CDs.
• B)FI manager trying to pick a futures contract whose underlying deliverable asset is not matched to the asset position being hedged.
• C)When an FI hedges a cash asset on a direct dollar-for-dollar basis with a forward or futures contract.
• D)When an FI manager wants to insulate the value of the institution's bond portfolio fully against a rise in interest rates.

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Definitions:

Invest

Deploying resources, specifically money, with the target of income or profit realization.

One-time Payment

A single financial transaction, often made for a specific purpose or to settle a liability.

Rate of Interest

The percentage of the principal amount charged by lenders for the use of their money or paid by banks on deposits over a specified time period.

Doubled

To increase something by 100%, making it twice as large or twice as much in quantity.