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    Question

         Which of the following is the correct

    definition of hedge ratio?
    A The ratio of the value of the hedge to the value of the underlying position Correct Answer Incorrect Answer
    B The ratio of the risk of the hedge to the risk of the underlying position Correct Answer Incorrect Answer
    C The ratio of the cost of the hedge to the value of the underlying position Correct Answer Incorrect Answer
    D The ratio of the benefit of the hedge to the cost of the hedge Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The hedge ratio is a measure of the extent to which a hedge position offsets the risk of another position. It is calculated by dividing the value of the hedge position by the value of the underlying position.

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