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

question 68

Multiple Choice

The covariance of the change in spot exchange rates and the change in futures exchange rates is 0.6606, and the variance of the change in futures exchange rates is 0.6060.The variance of the change in spot exchange rates is 0.9090.What is the degree of hedging effectiveness?

• A)0.61.
• B)0.90.
• C)0.87.
• D)0.82.
• E)0.79.

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Definitions:

Cash Transactions

Financial transactions involving the immediate payment of cash for the purchase of goods or services.

Pretax Income

Pretax Income is the total income a company earns before any taxes are deducted, highlighting its profitability from operations and non-operating activities.

Independent Situation

A scenario or condition that is not influenced by other variables, often used in determining the effect of specific factors in an analysis.