Kelly works for a plastics company as a risk manager. Kelly had used crude oil futures as

a cross hedge because plastic prices and crude oil prices were highly correlated in the

past. Unfortunately, plastic prices have been very volatile lately and the hedge has

severely underperformed, generating very high costs to the company.

a$.$ What assumptions with respect to the hedge ratio might Kelly change to get a

better hedge?

b$.$ Kelly's annual review is also coming up soon. What should Kelly tell her bos

about cross hedging to keep from being fired?