Which of the Following Statements Is Incorrect with Respect to Cross-Hedging

question 60

Multiple Choice

Which of the following statements is incorrect with respect to cross-hedging?

• A) Even when the futures contract is highly correlated with the portfolio being hedged, the value of the futures contract may change by a higher or lower percentage than the portfolio's market value.
• B) If the futures contract value is more volatile than the portfolio value, hedging will require a greater amount of principal represented by the futures contracts.
• C) The effectiveness of a cross-hedge depends on the degree of correlation between the market values of the two financial instruments.
• D) If the price of the underlying security of the futures contract moves closely in tandem with the security being hedged, the futures contract can provide an effective hedge.
• E) All of the above are correct with respect to cross-hedging.

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Definitions:

Injury To Reputation

Harm caused to a person's or entity's good name, professional standing, or respect in the community, often due to false statements or actions.

Competing Software

Software products that offer similar features and are in direct competition with one another in the marketplace.

Conversion

The unauthorized act of taking or using someone else's property as one's own, infringing on the rightful owner's rights.

Wrongful Interference

An intentional act of causing a party to fail to fulfill their contractual obligations, resulting in damage or loss.