A Company Is Considering Using Futures Contracts to Hedge an Identified

question 22

Multiple Choice

A company is considering using futures contracts to hedge an identified interest rate exposure on its debt facilities.However, it is concerned about the impact of basis risk.All of the following statements regarding basis risk are correct, except:

• A)basis risk is the difference between prices in the physical market and the price of the relevant futures market contract.
• B)the existence of basis risk removes the opportunity for a perfect borrowing hedge.
• C)initial basis will be evident while the market is of the view that physical market prices will remain stable.
• D)final basis will exist where a futures contract is used to hedge a risk associated with a different physical market product.

Understand the cyclical nature of the human biological clock.

Grasp the development and significance of cognitive control mechanisms in adolescence.

Recognize the disorders related to eating behaviors and their characteristics.

Understand the sequence and significance of physical growth patterns during adolescence.

---

Definitions:

Segmented Income Statement

A financial statement that breaks down revenues, expenses, and profits by specific segments, such as product lines or geographic areas, within a company.

Variable Expenses

Variable expenses are costs that change in proportion with the level of activity or production volume, such as raw materials and direct labor.

Contribution Margin

The residual sum from sales income following the subtraction of variable costs.

Segment Margin

The contribution margin of a specific segment of a business, excluding common fixed costs, to assess the segment's financial performance independently.