An FI has reduced its interest rate risk exposure to the lowest possible level by selling sufficient futures to offset the risk exposure of its whole balance sheet or cash positions in each asset and liability.The FI is involved in
A)microhedging.
B)selective hedging.
C)routine hedging.
D)overhedging.

Question

Quizplus · Accepted Answer

By selling sufficient futures to offset the risk exposure of its entire balance sheet or cash positions, the FI is engaging in routine or total hedging, which is an effective way to reduce interest rate risk exposure. Microhedging involves hedging individual securities or assets, while selective hedging involves hedging only certain risks, and overhedging involves hedging beyond necessary levels.

An FI Has Reduced Its Interest Rate Risk Exposure to the Lowest