What Must Be the Daily Interest Rate (Expressed in Continuously-Compounded

question 3

Multiple Choice

What must be the daily interest rate (expressed in continuously-compounded and annualized terms) for the tailed hedge ratio to be 90% of the untailed one for a one-year hedge? Assume a hedging horizon of 365 days.

• A)10%
• B)15%
• C)20%
• D)25%

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Definitions:

Russian-Germans

Individuals or descendants of those who migrated from Germany to Russia, particularly during the 18th and 19th centuries.

Czar Alexander II

The Emperor of Russia from 1855 to 1881, known for emancipating the serfs in 1861 and implementing significant reforms.

Communist Rule

A system of government where the state plans and controls the economy and a single, often authoritarian party holds power, claiming to make progress toward a higher social order in which all goods are equally shared by the people.

Crimean War

A military conflict fought from 1853 to 1856 in which Russia lost to an alliance of the Ottoman Empire, France, Britain, and Sardinia, highlighting the frailties of the Russian military.