Response to the following questions:
1. What are the differences between a microhedge and a macrohedge for an FI? Why is it generally more efficient for FIs to employ a macrohedge than a series of microhedges?
2. What are the reasons why an FI may choose to hedge selectively its portfolio?
3. What is basis risk? What are the sources of basis risk?
If possible, please give examples to better understand your response.