Question 18 13 pts Company J&T wants to buy 100,000 units of asset A in three months. Suppose that the standard deviation of the quarterly changes in the price of asset A is $2. The standard deviation of quarterly changes in the futures price for a contract on an underlying asset B which similar to asset A is $2.5. The correlation between the quarterly changes in the price of asset A and the quarterly changes in the futures price for the contract on asset B is 0.85. One futures contract is on 3,000 units of asset B. (a) Should J&T enter long or short futures positions in order to hedge its exposure? [2 marks] (b) What is the minimum variance hedge ratio in this case? What does this hedge ratio mean? [4 marks] (c) How many futures contracts on asset B should be traded? [3 marks] (d) What is the hedge effectiveness? How can you interpret this number? [4 marks] Edit View Insert Format Tools Table 12pt v Paragraph BIU