Cross-Hedgers Involve More Basis Risk Than Direct Hedges

question 34

True/False

Cross-hedgers involve more basis risk than direct hedges.

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Definitions:

External Benefits

Positive effects of a production or consumption activity on third parties not directly involved in the transaction, leading to social or economic benefits.

Total Surplus

The sum of consumer and producer surplus, representing the total net benefit to society from a market transaction.

Socially Efficient Quantity

The level of production of a good or service that results in the optimal combination of economic efficiency and social welfare.

Market Equilibrium

A market state where the supply of goods matches demand, resulting in stable prices where the quantity of goods buyers are willing to buy equals the quantity sellers are willing to sell.