Chapter 3 Flashcards
1
Q
Hedging with Futures
A
aims to reduce a risk exposure (neutralize risk)
2
Q
Company A provides Asset B
A
If price goes up that is good for it because it can win more
If price goes down, it will lose
3
Q
So company will do short hedge
A
google it
4
Q
long hedge
A
google it
5
Q
Basis Risk
A
Cross hedging: using a proxy ‘futures’ for an asset: For example using a proxy ‘futures’ for an asset (using heating oil “HO” to hedge jet fuel)
6
Q
Basis Risk
A
Uncertain dates: Asset purchase/expiration overlap
7
Q
Basis Risk:
A
Risk of delivery/expiration overlap
