Balance sheet hedging is:
资产负债表对冲是：

Question

BlackTom AI · Accepted Answer

To start, let's restate the question and the options in a clear way before diving into each choice.
Question: Balance sheet hedging is: 资产负债表对冲是：
Options:
1) Hedging maturities of assets and liabilities. 资产和负债的对冲期限。
2) Maximising return by increasing maturity of assets. 通过增加资产的期限来最大化回报。
3) Using derivatives to eliminate interest rate risk. 使用衍生品来消除利率风险。
4) Impractical because it involves continuous utilisation of off-balance sheet items. 不切实际，因为它涉及表外项目的持续使用。

Option 1 reasoning:
- This choice asserts that balance sheet hedging focuses on aligning or hedging the maturities of assets and liabilities. This aligns with the core idea of balance sheet risk management: reducing interest rate risk by matching the timing of cash inflows and outflows to minimize sensitivity to interest-rate changes. It emphasizes structural balance sheet mitigation rather than relying solely on trading or speculative strategies.

Option 2 reasoning:
- The statement suggests maximizing return by increasing asset maturity. While extending asset maturities can affect yield and duration, balance sheet hedging is primarily about risk mitigation of the balance sheet, not about opt-ing for higher returns. This framing conflates risk management with return maximization, which is a different objective and not the central definition of balance sheet hedging.

Option 3 reasoning:
- The claim that balance sheet hedging uses derivatives to eliminate interest rate risk captures a common hedging technique, but the wording is too absolute. In practice, derivatives are tools that help manage or transfer interest rate risk, not guarantee its complete elimination. Moreover, balance sheet hedging emphasizes structural measures (like duration matching) in addition to or instead of sole derivative use. Therefore, describing it as definitively eliminating risk overstates the goal.

Option 4 reasoning:
- This option characterizes balance sheet hedging as impractical due to continuous use of off-balance sheet items. In reality, off-balance sheet items are not the defining feature of balance sheet hedging, and many institutions focus on on-balance sheet structural alignment. This description is both technically incorrect and overly pessimistic about the practicality of the approach.

Summary of why these options behave as they do:
- Option 1 accurately captures a principal aspect of balance sheet hedging: aligning the maturities (timing) of assets and liabilities to manage interest rate exposure.
- Options 2, 3, and 4 either misstate the objective (return maximization), overstate the capability of hedging tools (absolute elimination with derivatives), or mischaracterize the approach (overemphasizing off-balance sheet items).

25751 Financial Institution Management - Spring 2025 25751 金融机构管理 - 2025 年春季 Week 6 Quiz 第 6 周测验

Balance sheet hedging is: 资产负债表对冲是：

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