You Can Use Futures to Hedge

question 12

Essay

You can use futures to hedge.However, in doing so, you may not always be able to achieve a perfect hedge.Give three reasons why this may be the case.

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Definitions:

Monopsonist

A single buyer dominant in a market, capable of influencing prices due to its purchasing power.

Labor Supply Curve

A graphical representation that shows the relationship between the wage rate and the quantity of labor that workers are willing to supply.

Impose

To enforce or apply a rule, tax, penalty, or restriction.

Settlement

In financial terms, a settlement is the process whereby securities are delivered, usually against in exchange for payment of money, to fulfill contractual obligations, such as those arising from the sale of securities.