Though a Cross Hedge Has Somewhat Higher Risk Than an Ordinary

question 7

Multiple Choice

Though a cross hedge has somewhat higher risk than an ordinary hedge,it will reduce risk if which of the following occurs?

• A)futures prices are more volatile than spot prices
• B)the spot and futures contracts are correctly priced at the onset
• C)spot and futures prices are positively correlated
• D)futures prices are less volatile than spot prices
• E)none of the above

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Definitions:

Non-Normal Cash Flows

This refers to cash flow patterns that do not follow a regular or predictable pattern, often seen in complex investment projects.

Initial Cash Flow

The initial amount of money invested or spent on a project or investment, often used as a reference point in cash flow analysis.

Cash Flows

The collective total of cash being injected into and withdrawn from a business, with a focus on liquidity impact.

IRR

The rate of return at which the sum of the present value of all cash inflows and outflows from an investment or project is zero.