A Hedge with a Futures Contract Reduces Volatility in Payoff

question 102

True/False

A hedge with a futures contract reduces volatility in payoff gains on both the upside and downside of interest rate movements.

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Definitions:

Multiplier

An economic factor that quantifies the impact of a change in investment, government spending, or other financial activity on the overall economy.

Marginal Propensity

Refers to the increase in personal consumer spending that occurs with an increase in disposable income.

Aggregate Expenditure

The total amount spent on goods and services in an economy at a given level of income during a specific period.

Marginal Propensity

The ratio of the change in consumption or saving to the change in income, indicating how income changes affect spending or saving behaviors.