An Optimal Hedge Ratio Is One in Which the Change

question 18

True/False

An optimal hedge ratio is one in which the change in the futures price equals the change in the spot price.

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Definitions:

Utility Function

A representation of a consumer's preference ranking over a set of goods and services, quantifying the satisfaction from each possible choice.

Reservation Price

This is another term for reserve price, meaning the lowest price at which someone is willing to sell a good or service.

Tape Recorder

An electronic device used for recording sound on magnetic tape and usually capable of playback.

Money

A medium of exchange used to facilitate transactions of goods and services.