A Hedge That Involves the Use of a Futures Contract

question 1

True/False

A hedge that involves the use of a futures contract on an instrument that is different from the instrument being hedged is called a cross hedge.

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Definitions:

Administrative Expense

Costs related to the general operation of a business, including executive salaries, legal and financial fees, and other overhead costs.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales activities.

Contribution Margin

The amount by which sales revenue exceeds variable costs, indicating how much revenue contributes to fixed costs and profits.

Least-squares Regression

A statistical technique that identifies the optimal fitting line by reducing the sum of the squared vertical deviations of the data points from that line.