Hedging in a Futures Market Does NOT Have Which of the Following

question 16

Multiple Choice

Hedging in a futures market does NOT have which of the following features?

• A) Hedging protects against adverse price swings.
• B) Hedging requires that the spot and the futures prices are positively correlated.
• C) Hedging can protect (one's investment or an investor)against loss by making balancing or compensating contracts or transactions.
• D) Hedging requires no payment between counterparties due to futures having zero initial value.
• E) Hedging protects against the downside but allows you to benefit from the upside.

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Definitions:

Goods

Tangible items that are produced or manufactured for sale to consumers or other businesses.

Present Value

The current value of a future amount of money, calculated by applying a discount rate to account for the time value of money.

Required Rate

The minimum expected rate of return on an investment, determined by assessing risk levels and market conditions.

Credit Policy

A set of guidelines that a company follows to determine credit terms for customers, which influences decisions such as payment periods and credit limits.