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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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