What Is the Reason for Decrease in the Number of Futures

question 110

Multiple Choice

What is the reason for decrease in the number of futures contract needed to hedge a cash position in case of tailing the hedge?

• A)Lower average transaction costs resulting from higher number of transactions.
• B)Interest income generated from reinvesting the cash flows generated by the futures contracts.
• C)Lack of perfect correlation between spot and futures prices.
• D)The effect of conversion factor.
• E)Hedging only a proportion of balance sheet position.

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Definitions:

Variability

Indicates the range and dispersion of individual scores from the mean in a dataset.

Confidence Interval

A range of values, derived from sample statistics, that is likely to contain the value of an unknown population parameter, providing a measure of uncertainty around a sample estimate.

Confidence Interval

A series of values, extracted from data samples, that is presumed to include the value of a not yet identified population attribute.

Sample Size

The number of observations or replicates included in a statistical sample, crucial for the reliability of study results.