You Are Hedging a Spot Position with Futures

question 2

Multiple Choice

You are hedging a spot position with futures.If the spot asset is less volatile than the futures,and there is basis risk,which of the following is surely false:

• A)The minimum-variance hedge ratio is greater than 1.
• B)The minimum-variance hedge ratio is less than or equal to 1.
• C)The minimum-variance hedge ratio is negative.
• D)The minimum-variance hedge ratio is not equal to 1.

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Definitions:

Disc Brakes

A type of brake system that uses calipers to squeeze pairs of pads against a disc or rotor to create friction, slowing the rotation of the wheels.

Drum Brakes

A type of brake that uses friction caused by a set of shoes or pads that press outward against a rotating cylinder-shaped part known as a drum.

Phenolic Plastic

A type of plastic made by polymerizing phenols and aldehydes, used in electrical and mechanical components due to its insulating and heat-resistant properties.

Caliper Pistons

That part of a disc brake caliper that applies pressure against the brake pad. Pistons are made of steel, plastic, or aluminum.