A Hedge Ratio Can Be Computed as ____________

question 39

Multiple Choice

A hedge ratio can be computed as ____________.

• A)profit derived from one futures position for a given change in the exchange rate divided by the change in value of the unprotected position for the same exchange rate
• B)the change in value of the unprotected position for a given change in the exchange rate divided by the profit derived from one futures position for the same exchange rate
• C)profit derived from one futures position for a given change in the exchange rate plus the change in value of the unprotected position for the same exchange rate
• D)the change in value of the unprotected position for a given change in the exchange rate plus by the profit derived from one futures position for the same exchange rate
• E)none of the above

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Definitions:

Diamond/Water Paradox

An observation in economics illustrating how water, which is essential to life, is cheap, while diamonds, which do not sustain life, are expensive.

Bundle of Goods

A combination of different goods and services that are considered together, often in the context of consumer choice, preferences, and budget constraints.

Total Price

The complete cost of purchasing a product, including all taxes and fees.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute one good for another that is relatively cheaper.