B is correct. The optimal hedge ratio is estimated by multiplying the correlation by the ratio of standard deviation of spot price to standard deviation of hedge price:
$h = \rho \times \sigma_s \div \sigma_f$.

The standard deviation is the square root of variance:
$\sigma_s = \text{sqrt}(0.0016) = 0.04$
$\sigma_f = \text{sqrt}(0.0009) = 0.03$
$h = 0.8 \times (0.04 / 0.03) = 1.067 \approx 1.07$

A is incorrect. The standard deviations are reversed.

C is incorrect. This uses the ratio of standard deviations without the correlation multiplier.

D is incorrect. It uses the variances instead of the standard deviations.

Learning Objective: Define cross hedging and compute and interpret the hedge ratio and hedge effectiveness.

Reference: Global Association of Risk Professionals, Financial Markets and Products (New York, NY: 2021).