When a financial institution is hedging interest-rate risk on its overall portfolio,the hedge is a ________.
A) macro hedge
B) micro hedge
C) cross hedge
D) futures hedge

Question

Quizplus · Accepted Answer

A macro hedge is used to manage or reduce risk across an entire portfolio, in this case, interest-rate risk on the overall portfolio of a financial institution. A micro hedge, on the other hand, is used to address risk for a specific asset or liability. A cross hedge involves hedging one asset with a derivative contract for a related asset, while a futures hedge involves using futures contracts to hedge risk.

When a Financial Institution Is Hedging Interest-Rate Risk on Its