Reducing the Number of Futures Contracts That Are Needed to Hedge

question 14

True/False

Reducing the number of futures contracts that are needed to hedge a cash position because of the interest income that is generated from reinvesting the marked-to-market cash flows generated by the futures contract is referred to as tail the hedge.

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Definitions:

EBIT

Earnings Before Interest and Taxes; a company's profit before deducting interest expenses and income taxes.

Total Fixed Costs

The sum of all costs required to produce any amount of a product or service that does not change with the level of production output.

Corporate Taxes

Taxes imposed on the income or profit of corporations, influencing their financial strategies and profitability.

EBIT

Stands for Earnings Before Interest and Taxes; it's a financial metric that calculates a company's profitability by excluding interest and income tax expenses.