The manager of a single-currency portfolio is investigating methods to hedge the portfolio. If he regresses the return of the portfolio on the return of the currency, the: A) slope coefficient of the regression represents the economic risk. B) slope coefficient of the regression represents the delta risk. C) intercept coefficient of the regression represents the economic risk.
b? seeing how well your hedge responds to movements in the portfolio?
can someone explain their choice of A
Mike0021: Its one of the 2 definitions of economic risk in the currency risk management article( I think). So i answered it more from memory.
mike0021 here is the explanation from Schweser: Your answer: A was correct! This is the measure of economic risk; it is the covariance of the portfolio return with the currency return over the variance of the currency return. Estimating this measure is part of composing a minimum-variance hedge.
I guess I should start learning those definitions. Helpful question, Dwight!
^ maratikus do you only post if you know the answer for sure? You seem to get a high proportion of the answers correct.