Which of the Following Is NOT True Regarding Hedge Ratio

question 59

Multiple Choice

Which of the following is NOT true regarding hedge ratio?

• A)When there is no basis risk hedge ratio is equal to one.
• B)When h = 1, both spot and futures are expected to change together by the same absolute amount.
• C)When h = 1, FX risk of the cash position should be hedged dollar for dollar by buying FX futures.
• D)When basis risk is present, the spot and future exchange rates are expected to move imperfectly together.
• E)The FI must sell a greater number of futures when there is basis risk than it has to when basis risk is absent.

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Definitions:

Specific Undertaking

A Specific Undertaking refers to a particular project or task that is distinctly defined within the scope of work or agreement.

Joint Venture

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task, which could be a new project or any other business activity.

Countertrade Deals

Transactions where goods and services are exchanged directly for other goods and services, without using currency as an intermediary.

Heavy Debt Burdens

Refers to situations where individuals, companies, or countries owe large amounts of money, making it difficult to manage finances or invest for the future.