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Using a Nonparametric Test When We Could Employ a Parametric

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Using a nonparametric test when we could employ a parametric test can be less efficient because a nonparametric test often tends to ignore available sample information; for example, by focusing only on the directions rather than the sizes of observed differences.


Definitions:

Hedge Relationship

A connection between a hedging instrument and the risk it is intended to offset, ensuring that changes in the value of one are counterbalanced by changes in the other.

Exchange Gain

A profit resulting from holding or transacting in foreign currencies as exchange rates vary.

Spot Rate

The existing selling or buying price of a certain currency for transactions that are completed right away.

Fair-Value Hedge

A hedge that is used to mitigate the risk of changes in the fair value of an asset, liability, or an unrecognized firm commitment.

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