If the Minimum-Variance Hedge Ratio Is $- 1$ , Then Which of the Following Statements Is True?
A)

question 13

Multiple Choice

If the minimum-variance hedge ratio is $- 1$ , then which of the following statements is true?

• A) Changes in spot and futures prices are perfectly negatively correlated.
• B) The standard deviations of spot and futures price changes are the same.
• C) The minimum-variance hedge for a long spot exposure is a short futures exposure of the same size.
• D) All of the above.

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Definitions:

Static Budget

A fixed budget that does not change or adjust to variations in sales volumes or business activity levels throughout the period.

Activity Levels

Various measures of operations or production quantity, such as units produced or hours worked, which can impact costs and managerial decisions.

Overhead Cost

Expenses that are not directly tied to production activities, such as rent, utilities, and general office expenses.

Machine Hours

A measure of production time where costs are allocated to products based on the number of hours machines are used in their manufacturing.