Suppose that the standard deviation of quarterly changes in the prices of a commodity is $0.65, the standard deviation of quarte
1 answer:
Answer:
The size of the futures position should be 64.2% of the size of the company’s exposure in a three-month hedge.
Explanation:
As given,
The standard deviation of quarterly changes in the prices of a commodity = $0.65
The standard deviation of quarterly changes in a futures price on the commodity = $0.81
The coefficient of correlation between the two changes = 0.8
Now,
Optimal hedge ratio = 0.8× = 0.8×0.80 = 0.6419
⇒Optimal hedge = 0.6419 ≈ 0.642 = 64.2 %
⇒The size of the futures position should be 64.2% of the size of the company’s exposure in a three-month hedge.
You might be interested in
The factor that would not affect the position of the supply curve for cranberries is the popularity of cranberry drinks.
The supply curve is a graph that shows the relationship between price and the quantity supplied. The supply curve is positively sloped. A change in the position of the supply curve can either be an outward shift or an inward shift. An outward shift indicate an increase in supply and an inward shift indicates a decrease in supply.
An increase in the price of agricultural land and the cost of fertilizers increases the cost of producing cranberries . This would lead to an inward shift of the supply curve. On the other hand, a decrease in the price of agricultural land and the cost of fertilizers would lead to an outward shift of the supply curve.
The development of a new pest control for cranberry production would lead to an outward shift of the supply curve as more cranberries can be produced.
Please check the attached image for a graph showing an increase in supply. To learn more about the supply curve, please check: brainly.com/question/1915798
