The Covariance of Changes Between the Spot Price and Futures

question 2

Multiple Choice

The covariance of changes between the spot price and futures price is 4. The standard deviation of changes in the futures price is 2. The optimal hedge ratio is

• A) 1
• B) 2
• C) 4
• D) 8

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Definitions:

Moving

The act of changing one’s residence or place of business; involves packing, transporting, and unpacking personal belongings or equipment.

Relativistic

Pertaining to the concept that points of view have no absolute truth or validity, being dependent instead on the perspectives and contexts from which they arise.

Reflective

Characterized by deep thought and careful consideration, often leading to insights about oneself or the world.

Pragmatic

Pertaining to a practical point of view or practical considerations, often favoring realistic and practical approaches to solving problems.