The Optimal Hedge Ratio Is a Function of All of the Following

question 9

Multiple Choice

The optimal hedge ratio is a function of all of the following except

• A) The standard deviation of changes in spot prices.
• B) The variance deviation of changes in forward prices.
• C) The covariance between changes in spot and forward prices.
• D) Choices a and b only
• E) All of the above

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Definitions:

Consumer Surplus

The gap between what consumers are ready and able to spend for a good or service and the actual amount they pay.

Willingness to Pay

The maximum amount an individual is prepared to expend on a good or service, reflecting the value they place on it.

Consumer Surplus

The discrepancy between the total sum consumers are prepared and capable of spending on a product or service and what they end up spending.

Consumer Surplus

The difference between the total amount consumers are willing and able to pay for a good or service and the total amount they actually pay.