Suppose That the Standard Deviation of Monthly Changes in the Price

question 1

Multiple Choice

Suppose that the standard deviation of monthly changes in the price of commodity A is $2.The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3.The correlation between the futures price and the commodity price is 0.9.What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

• A) 0.60
• B) 0.67
• C) 1.45
• D) 0.90

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Definitions:

Paycheque

The physical or electronic means by which an employer disburses wages or salaries to employees.

Incidence Rate

A measure used in epidemiology to assess the frequency of new cases of a disease or condition within a specified population over a certain period of time.

Full-time Employees

Workers who are employed for the standard working hours of an organization, typically benefiting from full employment rights, including salary, benefits, and employment security.

Accident Rate

A measurement of the number of accidents occurring in a particular environment or organization over a specific period, often used to gauge safety.