22-29 Hedging selectively only a portion of the balance sheet is an attempt to increase the return of the FI by accepting some level of interest rate risk.

Question

Quizplus · Accepted Answer

Selective hedging refers to hedging only a portion of the balance sheet to increase the return of the financial institution (FI). This strategy allows the FI to accept some level of interest rate risk, which can result in higher returns. However, this also means that the FI will be exposed to some interest rate risk, which can lead to losses if interest rates move in an unfavorable direction.

22-29 Hedging Selectively Only a Portion of the Balance Sheet