A Naïve Hedge Is One

question 40

Multiple Choice

A naïve hedge is one

• A) where the hedger is not fully informed.
• B) where the hedger attempts to eliminate all of the risk of the underlying spot position.
• C) where the hedger uses microhedges rather than macrohedges to limit risk.
• D) where the hedger unwittingly increases the risk of the FI's position.
• E) that does not have to be reported on the FI's financial statements.

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Definitions:

Anchoring with Adjustment Heuristic

A cognitive bias in decision-making where an initial value (the "anchor") heavily influences subsequent judgments and adjustments.

Temporizing Heuristic

A cognitive strategy involving delaying decision making until more evidence or information is available.

Successful Events

Occurrences or activities that achieve their intended goals or are considered positive by the majority of participants.

Past Failures

Previous instances of not achieving desired or intended outcomes, serving as lessons for future endeavors.