What Does R² = 0 Indicate

question 13

Multiple Choice

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.

---

Definitions:

Settlement Date

The day when a trade is finalized, and the buyer must pay for the securities.

Floating Exchange Rate

A currency's value is allowed to fluctuate according to the foreign exchange market without direct government control.

Currency

A system of money in general use in a particular country.

Eurodollar Deposit

A U.S. dollar-denominated deposit held at banks outside the United States, typically used in international transactions.