Which of the Following Statements Is (Are) Correct About the Reasons

question 24

Multiple Choice

Which of the following statements is (are) correct about the reasons why hedging is difficult to do perfectly?
I.Available futures contract sizes may not match the hedging needs of the firm.
II. There may be a change in the relationship between the futures price and the local spot price.

• A) Only statement I is correct.
• B) Only statement II is correct.
• C) Both statements I and II are correct.
• D) Neither statement I nor II is correct.

---

Definitions:

Inelastic Demand

A situation where the demand for a product does not significantly change with a change in its price.

Price Inelastic

Refers to a situation where the quantity demanded or supplied of a good or service changes by a smaller percentage than changes in price.

Alcohol Tax

A tax imposed on the sale of alcoholic beverages, often used as a means to discourage excessive drinking and to generate government revenue.

Revenue

The total amount of money generated by a company from its business activities, such as sales of goods or services, before any expenses are subtracted.