A decrease in the basis will __________ a long hedger and __________ a short hedger.

Question

Quizplus · Accepted Answer

A decrease in basis means that the cash price is increasing faster than the futures price. This hurts a long hedger who has locked in a higher futures price and now has to sell at a lower cash price. On the other hand, a short hedger who has locked in a lower futures price and can now buy at a higher cash price benefits from a decrease in basis.

A Decrease in the Basis Will __________ a Long Hedger