Consider Hedging an Exposure with (I)a Futures Contract,or (Ii)an Option

question 2

Multiple Choice

Consider hedging an exposure with (i) a futures contract,or (ii) an option with a strike price close to the futures price.The hedge with the futures contract

• A)Has more cashflow uncertainty.
• B)Has no upfront cost.
• C)Has non-negative payoffs.
• D)Has more cashflows.

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Definitions:

Central Executive

A component of working memory model that is responsible for directing attention and coordinating cognitive processes.

Phonological Loop

A component of working memory responsible for holding and rehearsing verbal and auditory information.

Visuospatial Sketchpad

A component of the working memory that holds and processes visual and spatial information, playing a critical role in navigation and understanding of spatial relationships.

Five-Star Restaurant

An upscale restaurant that has been awarded the highest rating for quality and service by recognized guides or publications.