Hedging in the Futures Markets Can Reduce All Risk If

question 40

Multiple Choice

Hedging in the futures markets can reduce all risk if:

• A) price movements in both the cash and futures markets are perfectly correlated.
• B) price movements in both the cash and futures markets have zero correlation.
• C) price movements in both the cash and futures markets are less than perfectly correlated.
• D) the hedge is a short hedge, but not a long hedge.
• E) the hedge is a long hedge, but not a short hedgE.

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Definitions:

Positive Statement

An objective and fact-based statement or claim that describes how the world actually is, as opposed to what it should be, often used in economic analysis.

Normative Statement

A value judgment that expresses an opinion or belief about what ought to be, rather than statements of fact.

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Professionals who study the production, distribution, and consumption of goods and services, often analyzing economic issues and trends.