Cross-hedging can best be defined as:
A) A forward contract with the feature that gains and losses are realized each day rather than only on the settlement date.
B) Hedging an asset with contracts written on a closely related, but not identical, asset.
C) Risk that futures prices will not move directly with cash price hedged.
D) An agreement by two parties to exchange, or swap, specified cash flows at specified intervals in the future.
E) An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.

Question

Quizplus · Accepted Answer

Cross-hedging involves using hedging instruments based on a related, but not identical, asset to the one being hedged. This is often done when direct hedging instruments for the asset in question are not available or are less efficient.

Cross-Hedging Can Best Be Defined As