Hedging Strategies Using Futures

Question 1

define

short hedge

Hedging Strategies Using Futures

Answer 1

a hedge that involves a short position in futures contracts

define

Hedging Strategies Using Futures

Question 2

describe

when is a short hedge strategy appropriate?

Hedging Strategies Using Futures

Answer 2

if the hedger already owns an asset and expects to sell it at some time in the future; or,
if the hedger doesn’t own an asset, but expects to own it in the future

describe

Hedging Strategies Using Futures

Question 3

define

long hedge

Hedging Strategies Using Futures

Answer 3

involves taking a long position in a futures contract

define

Hedging Strategies Using Futures

Question 4

describe

when is a long hedge appropriate?

Hedging Strategies Using Futures

Answer 4

if the hedger knows it will have to purchase a certain asset in the future and wants to lock in a price now

describe

Hedging Strategies Using Futures