The Covariance of the Change in Spot Exchange Rates and the Change

question 43

Multiple Choice

The covariance of the change in spot exchange rates and the change in futures exchange rates is 0.6060, and the variance of the change in futures exchange rates is 0.5050.What is the estimated hedge ratio for this currency?

• A)0.306.
• B)0.694.
• C)1.440.
• D)1.200.
• E)0.833.

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Definitions:

Passive Activity

Financial activities in which the taxpayer does not materially participate, often generating passive income or losses for tax purposes.

Rental Losses

Financial losses incurred from renting out property, often deductible under specific conditions on a taxpayer's return.

Active Income

Earnings received from direct labor or active business activities, as opposed to passive income from investments.

Portfolio Income

Income from investments, including dividends, interest, and capital gains, excluding active business income.