When Will the Estimated Hedge Ratio Be Greater Than One

question 49

Multiple Choice

When will the estimated hedge ratio be greater than one?

• A)When spot rate changes are greater than futures rate changes.
• B)When spot rate changes are less sensitive than futures price changes over time.
• C)When spot rate changes are equally sensitive as futures price changes over time.
• D)When basis risk is absent.
• E)When the spot and future exchange rates are expected to move perfectly together.

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Definitions:

360-Day Year

A simplified accounting method that assumes there are 360 days in a year, used for calculating interest and other financial metrics.

Principal

The original sum of money borrowed in a loan, or the initial amount of investment, excluding interest or profit.

Ordinary Simple Interest

Interest calculated on the principal amount only, without compounding, over a specific period.

360-Day Year

An accounting convention used for interest calculations where the year is simplified to 360 days to ease the computation process.