alleryStart learning →A derivative loses 70 while the hedged item gains 100. Under the 80:125 rule, is the hedge effective?
AYes, as the ratio is 1.43
BNo, as the ratio is 0.70
CYes, as the ratio is 0.70
DNo, as the ratio is 0.95
Answer & Solution
Correct answer: B. No, as the ratio is 0.70
70 divided by 100 is 0.70, below 0.8, so the hedge fails the rule.
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