The tailed hedge ratio becomes lower in comparison to the untailed one when
A) Interest rates rise and hedge maturity increases.
B) Interest rates rise and hedge maturity decreases.
C) Interest rates fall and hedge maturity increases.
D) Interest rates fall and hedge maturity decreases.

Question

Quizplus · Accepted Answer

The tailed hedge ratio accounts for the time value of money, and when interest rates rise and hedge maturity increases, the present value of future cash flows decreases, leading to a lower tailed hedge ratio compared to the untailed one.

The Tailed Hedge Ratio Becomes Lower in Comparison to the Untailed