According to the Text, When a Financial Institution Sells Futures

question 4

Multiple Choice

According to the text, when a financial institution sells futures contracts on securities in order to hedge against a change in interest rates, this is referred to as

• A)a long hedge.
• B)a short hedge.
• C)a closed out position.
• D)basis trading.

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Definitions:

Passive Loss Rules

IRS regulations that prevent investors from offsetting income with losses from passive activities unless they directly participate in them.

Disallowed Loss

A loss that cannot be deducted for tax purposes, often because it does not meet specific criteria set by tax authorities.

Passive Income

Income generated from ventures in which an individual is not actively involved.

At-risk Amount

The amount of money an investor can actually lose from an investment, often used to limit losses in activities where money is at risk.