If Changes in Spot and Futures Prices Have a Correlation $- 1$

question 10

Multiple Choice

If changes in spot and futures prices have a correlation of $- 1$ , then

• A) The hedge ratio is \(- 1\) .
• B) The variance of cash flows from a hedged position under the minimum-variance hedge ratio is zero.
• C) The net cash flow at maturity of the hedge is zero.
• D) The standard deviation of spot price changes must equal the negative of the standard deviation of futures price changes.

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Definitions:

Interdependence

The mutual reliance between two or more groups, organisms, or objects where each influences or controls the existence or actions of the others.

Confederate

An individual who is part of a group with a shared goal, often used in psychological experiments to play a specific role without the subject's knowledge.

Majority Judgment

A decision-making process where the choice supported by the majority of members is selected.

Truth

The quality or state of being in accordance with fact or reality.