Which of the Following Indicates the Need to Place a Hedge

question 29

Multiple Choice

Which of the following indicates the need to place a hedge?

• A)The price movement in the underlying cash asset cannot be forecasted perfectly.
• B)The prices of the assets or liabilities are imperfectly correlated over time with the prices on the futures.
• C)Basis risk prevents the minimum risk of the portfolio from reaching zero.
• D)Treasury has been issuing more shorter-dated bonds to finance U.S.budget deficits.
• E)Spot bonds and futures on bonds are traded in different markets.

---

Definitions:

Time Value

The idea that money currently in hand is more valuable than the same sum received in the future because of its ability to earn more over time.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase a stock or other asset at a specified price within a certain time frame.

Present Value

The current value of a future amount of money or stream of cash flows given a specified rate of return.

Deltas

In options trading, deltas measure the rate of change of the option's price relative to a one-unit change in the price of the underlying asset, indicating how the price of the option is expected to move.