When Performing a Linear Regression of the Relationship Between Changes

question 38

Multiple Choice

When performing a linear regression of the relationship between changes in spot prices and changes in futures prices, what does R² = 0 indicate?

• A)Changes in the spot rate and changes in the futures price are perfectly correlated.
• B)All observations between changes in spot rate and changes in futures price lie on a straight line.
• C)The spot and future exchange rates are expected to move imperfectly together.
• D)The FI must sell a greater number of futures to hedge the cash position.
• E)There is no statistical association between changes in spot rates and changes in futures price.

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