Consider hedging an exposure with (i) a futures contract, or (ii) an option with a strike price close to the futures price. The hedge with the futures contract
A) Has more cashflow uncertainty.
B) Has no upfront cost.
C) Has non-negative payoffs.
D) Has more cashflows.

Question

Quizplus · Accepted Answer

Futures contracts typically do not have an upfront cost, unlike options which require the payment of a premium. Hedging with futures involves entering into a contract to buy or sell an asset at a future date for a price agreed upon today, without the need to pay a premium upfront.

Consider Hedging an Exposure with (I) a Futures Contract, or (Ii)