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:

Coercive Power

Power that is derived from the ability to punish or penalize others, often used as a means to achieve compliance or control.

Reward Power

The capacity to influence others by providing or withholding desired outcomes.

Information Power

A form of power that comes from access to, control over, and distribution of information.

Legitimate Power

The authority that a person possesses as a result of their position in an organization's hierarchy.