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

question 84

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.
• E)When an FI manager wishes to use futures or other derivative securities to hedge the entire balance sheet duration gap.

Understand and apply the concept of Net Present Value (NPV) in capital budgeting decisions.

Comprehend and calculate the payback period for investments.

Understand and determine the simple rate of return (accounting rate of return) for various projects.

Analyze investment projects using the profitability index.

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Definitions:

Cocktail Party Phenomenon

The capacity to concentrate one's listening efforts on a specific sound while ignoring other surrounding noises.

Posner Effect

A phenomenon in cognitive psychology indicating that attention can be directed to a location without the need for the eyes to move.

Craik Effect

A phenomenon where the depth of processing impacts memory recall; deeper processing leads to better retention.

Late Selection

A cognitive process theory suggesting that all incoming information is processed at a basic level before selective filtering happens based on its importance.