A decrease in the basis will __________ a long hedger and __________ a short hedger.
A) hurt; benefit
B) hurt; hurt
C) benefit; hurt
D) benefit; benefit
E) benefit; have no effect upon

Question

Quizplus · Accepted Answer

A decrease in the basis will hurt a long hedger because it will increase the value of the underlying asset, which will cause the long hedger to lose money on their hedge. A decrease in the basis will benefit a short hedger because it will decrease the value of the underlying asset, which will cause the short hedger to make money on their hedge.

A Decrease in the Basis Will __________ a Long Hedger