Question seems wrong. Let me explain.
First two points are:
"temporal locality of reference in a program"
"spatial locality of reference in a program"
Notice that they say "in a program". Now I guess both are true. For sequential instructions in program, spatial locality of reference will be exploited. It is somewhat not straightforward to imagine how temporal locality of reference can be exploited. WIkipedia definition of temporal locality:
If at one point a particular memory location is referenced, then it is likely that the same location will be referenced again in the near future.
Its incorrect to think that any program cannot exhibit above behavior. (For example for non sequential instructions say conditional jumps instructions, temporal locality of reference will be exploited.) And its incorrect to say that cache manager will not be able to predict such behavior and cache the more probable instructions out of sequential access (say jump target instruction). So temporal locality can very well be exploited.
In fact I feel any kind of locality of reference be exploited. Its just that cache manager needs to have that much of intelligence of what to cache and what not to. So saying that just XType of locality reference is exploited seems incorrect, since it negates possibility of exploiting other types of locality of references.
Option C is straight wrong. Miss ratio is reduced, not miss penalty. But are we supposed to make that difference between miss ratio and penalty?
I guess I will leave this question and will not attempt.
I will like someone proves me wrong.