The effectiveness of a hedge is influenced by the closeness of the match between the item being hedged and the financial instrument chosen as a hedge.

Question

Quizplus · Accepted Answer

The effectiveness of a hedge is dependent on the correlation or closeness of the match between the item being hedged and the financial instrument chosen as a hedge. A closer match will result in a more effective hedge, while a mismatch would lead to a less effective hedge or even losses.

The Effectiveness of a Hedge Is Influenced by the Closeness