Which of the following is NOT true regarding hedge ratio?
A)When there is no basis risk hedge ratio is equal to one.
B)When h = 1,both spot and futures are expected to change together by the same absolute amount.
C)When h = 1,FX risk of the cash position should be hedged dollar for dollar by buying FX futures.
D)When basis risk is present,the spot and future exchange rates are expected to move imperfectly together.

Question

Quizplus · Accepted Answer

When h = 1, it implies a perfect hedge, but it doesn't necessarily mean that FX risk should be hedged dollar for dollar by buying FX futures; it depends on the specific risk exposure and hedging strategy.

Which of the Following Is NOT True Regarding Hedge Ratio