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:

Goal Accomplishment

The successful achievement of a task or objective that has been set.

Constructive Conflict

A type of disagreement that is managed in a way that leads to mutual growth and problem-solving.

Incremental Theories

Beliefs that abilities and intelligence can grow and develop with time and practice.

External Environment

All elements outside of an organization that can potentially affect its performance or operations.