When Would a Forward Contract Be Better for Hedging Than

question 31

Essay

When would a forward contract be better for hedging than a futures contract?

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Definitions:

Illusory Correlation

The phenomenon of perceiving a relationship between variables (typically people, events, or behaviors) even when no such relationship exists.

Spotlight Effect

This refers to the tendency to overestimate how much other people notice about us, especially our appearance and behavior.

Fundamental Attribution

The tendency to overestimate the influence of personality traits and underestimate the influence of situational factors when evaluating someone else's behavior.

Cognitive Dissonance

The mental discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time, leading to psychological tension and behavior change.