A Hedge Ratio Can Be Computed as

question 25

Multiple Choice

A hedge ratio can be computed as

• A) profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate.
• B) the change in value of the unprotected position for a given change in the exchange rate divided by the profit derived from one futures position for the same exchange rate.
• C) profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate.
• D) the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate.

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Definitions:

Portfolio Weight

The fraction of a portfolio's total value that is invested in a particular asset.

Stock A

A hypothetical designation for a particular equity security in examples relating to stock market discussions.

Expected Return

The predicted average of all possible returns for an investment, considering both risk and reward.

Beta

A measure of a stock's volatility in relation to the overall market; a beta above 1 indicates greater volatility than the market, while a beta below 1 indicates less.