When Will the Estimated Hedge Ratio Be Greater Than One

question 86

Multiple Choice

When will the estimated hedge ratio be greater than one?

• A)When spot rate changes are greater than futures rate changes.
• B)When spot rate changes are less sensitive than futures price changes over time.
• C)When spot rate changes are equally sensitive as futures price changes over time.
• D)When basis risk is absent.

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Definitions:

Microeconomics

The branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.

Economic Behavior

The actions and decisions made by individuals, households, and firms regarding the production, distribution, and consumption of goods and services.

Natural Resources

Substances and resources like minerals, forests, water, and arable land that are found in nature and can be exploited for financial benefit.

Economic Model

A simplified representation, often mathematical, of economic processes, relationships, or phenomena, to predict and explain economic behavior.