Financial Risk Manager Part 2
Get started today
Ultimate access to all questions.
Comments
Loading comments...
Ultimate access to all questions.
should sell the US Treasury with a face value of $93.6m. The colleague of risk manager reviews the hedging procedure and states that "...if you want to hedge a US Treasury with a face value of $93.6m, then just sell $100m corporate bond...". Which of the following statements is correct regarding the colleague's statement?
A
The colleague's statement is correct because the calculated risk weights will be the same under the two hedging transactions.
B
The colleague's statement is correct because both hedging transactions will minimize the volatility of the hedged position's Profit/Loss.
C
The colleague's statement is incorrect because the risk of hedging transactions is set by the different face values decided by the hedger.
D
The colleague's statement is incorrect because these trades are only indifferent if we scale up the reverse regression hedge.