If Changes in Spot and Futures Prices Are Uncorrelated, Then

question 6

Multiple Choice

If changes in spot and futures prices are uncorrelated, then

• A) The minimum variance hedge ratio is zero.
• B) Basis risk is zero.
• C) Hedging the spot position with futures is effective because the portfolio is well-diversified.
• D) The minimum variance hedge requires holding equal amounts of spot and futures.

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Definitions:

Discrimination

An aspect of learning in which the organism learns to respond differently to stimuli that have been associated with a US (or reinforcement), and stimuli that have not.

Specific CS

A conditioned stimulus that elicits a particular conditioned response through association with an unconditioned stimulus in classical conditioning.

Similar Stimuli

Stimuli that share common characteristics or attributes, making them alike to the sensory system.

Conditioned Stimulus

Refers to a previously neutral stimulus that, after becoming associated with an unconditioned stimulus, eventually triggers a conditioned response.