Selective hedging occurs by reducing the interest rate risk by selling sufficient futures contracts to offset the interest rate risk exposure of a portion of the cash positions on the balance sheet.

Question

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Selective hedging is a common practice used by companies to reduce their interest rate risk exposure by selling futures contracts to offset any potential losses in a portion of their cash positions. This enables companies to protect their cash flows and minimize any potential financial losses due to interest rate fluctuations.

Selective Hedging Occurs by Reducing the Interest Rate Risk by Selling