Question

A treasury manager will have surplus funds to invest in two months. If her goal is to eliminate the uncertainty of the interest rate at which the funds will be invested, would engage in a a. buy hedge b. sell hedge c. surplus hedge d. investment hedge

Answer 1

Answer: short sell hedge is a perfect strategy for this kind of scenario.

A hedge is an investment that protects your finances from a risky situation. Hedging is done to minimize or offset the chance that your assets will lose value. It also limits your loss to a known amount if the asset does lose value. It's like home insurance. You pay a fixed amount each month. If a fire wipes out all the value of your home, your loss is the only the known amount of the deductible.