Which of the Following Indicates the Need to Place a Hedge

question 29

Multiple Choice

Which of the following indicates the need to place a hedge?

• A)The price movement in the underlying cash asset cannot be forecasted perfectly.
• B)The prices of the assets or liabilities are imperfectly correlated over time with the prices on the futures.
• C)Basis risk prevents the minimum risk of the portfolio from reaching zero.
• D)Treasury has been issuing more shorter-dated bonds to finance U.S.budget deficits.
• E)Spot bonds and futures on bonds are traded in different markets.

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Definitions:

(Paid-In) Capital

The amount of money that a company has received from shareholders in exchange for shares of stock, contributing to the company's equity.

Capital Stock

The total amount of shares a company can issue, as authorized by its corporate charter.

Partnership

A legal form of business operation between two or more individuals who share management and profits.

Debts Of Entity

Financial obligations that a company or individual owes to external parties or creditors.