22-68 When Will the Estimated Hedge Ratio Be Greater Than

question 17

Multiple Choice

22-68 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.
• E)When the spot and future exchange rates are expected to move perfectly together.

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Definitions:

LIFO Method

Last In, First Out method; an inventory valuation method where the last items added to inventory are assumed to be sold first.

Cost Of Goods Sold

The straightforward costs associated with producing goods for sale by a company, covering labor and materials.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory then subtracting goods sold.