22-67 How Is a Hedge Ratio Commonly Determined

question 75

Multiple Choice

22-67 How is a hedge ratio commonly determined?

• A)By discounting the optimal number of futures to sell per $1 of cash position using the yield involved.
• B)By using the ratio of the most recent spot and futures price changes.
• C)By running an ordinary least squares regression of changes in spot prices on changes in futures prices.
• D)By using the conversion factor.
• E)By squaring the correlation between past changes in spot asset prices and futures prices.

---

Definitions:

Inverse Relationship

A situation where two variables move in opposite directions, meaning as one variable increases, the other decreases.

Gardner

Howard Gardner is a developmental psychologist best known for his theory of multiple intelligences, which suggests that individuals have various kinds of intelligences.

Sternberg

often associated with Robert Sternberg, an American psychologist known for his theory on intelligence, creativity, and wisdom.

Intelligence

The capacity for learning, understanding, problem-solving, and the ability to acquire and apply knowledge.