What Is the Reason for Decrease in the Number of Futures

question 110

Multiple Choice

What is the reason for decrease in the number of futures contract needed to hedge a cash position in case of tailing the hedge?

• A)Lower average transaction costs resulting from higher number of transactions.
• B)Interest income generated from reinvesting the cash flows generated by the futures contracts.
• C)Lack of perfect correlation between spot and futures prices.
• D)The effect of conversion factor.
• E)Hedging only a proportion of balance sheet position.

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Definitions:

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The formation of thin ice crystals on the ground or objects outside when the temperature falls below the freezing point of water.