Which of the Following Is NOT True Regarding Hedge Ratio

question 59

Multiple Choice

Which of the following is NOT true regarding hedge ratio?

• A)When there is no basis risk hedge ratio is equal to one.
• B)When h = 1, both spot and futures are expected to change together by the same absolute amount.
• C)When h = 1, FX risk of the cash position should be hedged dollar for dollar by buying FX futures.
• D)When basis risk is present, the spot and future exchange rates are expected to move imperfectly together.
• E)The FI must sell a greater number of futures when there is basis risk than it has to when basis risk is absent.

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Definitions:

Prosperity Phase

A period during an economic cycle characterized by high economic growth, employment, and consumer spending.

Recession Phase

An interval of economic downturn where commercial and manufacturing operations decrease, commonly indicated by two successive quarters of falling GDP.

Disinflation

A slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time.

Labor Force

The total number of people who are both employed and actively seeking employment.