A Naive Hedge Occurs When

question 24

Multiple Choice

A naive hedge occurs when

• A)an FI manager wishes to use futures or other derivative securities to hedge the entire balance sheet duration gap.
• B)a cash asset is hedged on a direct dollar-for-dollar basis with a forward or futures contract.
• C)an FI reduces its interest rate or other risk exposure to the lowest possible level by selling sufficient futures to offset the interest rate risk exposure of its whole balance sheet.
• D)an FI purchases an insurance cover to the extent of 80% of losses arising from adverse movement in asset prices.
• E)All of the above.

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Definitions:

Toyota Production System

A manufacturing philosophy that focuses on continuous improvement and elimination of waste, promoting efficiency and just-in-time production.

Creativity

The ability to produce original and unusual ideas, or to make something new or imaginative.

Kanban System

A lean manufacturing tool that uses visual cues to signal the need to move materials or parts within a production process.

Variability

The extent to which data points in a distribution or set differ from each other and from the mean or average.