Consider the Following Two Statements: (I) Buying a Futures Contract

question 2

Multiple Choice

Consider the following two statements: (i) Buying a futures contract to reduce risk close to delivery is called a short hedge.
(ii) The hedging decision is independent of market efficiency.

• A)(i) is correct, (ii) is incorrect.
• B)(ii) is correct, (i) is incorrect.
• C)(i) and (ii) are both correct.
• D)(i) and (ii) are both incorrect.
• E)(i) and (ii) are both correct only if it is a forward contract.

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Definitions:

Securities Exchange Act

A U.S. law enacted in 1934 that governs the trading of securities, such as stocks and bonds, to protect investors and maintain fair and orderly markets.

Williams Act

A federal law in the United States that governs the disclosure requirements for tender offers in corporate takeovers.

Tender Offer

A public proposal to buy a substantial number of shares from a company's shareholders, typically at a premium to the market price.

Solicitation

The act of requesting or trying to obtain something, often used in legal contexts to refer to efforts to procure goods, services, or funds.