Which of the following statements is (are) correct about the reasons why hedging is difficult to do perfectly?
I.Available futures contract sizes may not match the hedging needs of the firm.
II. There may be a change in the relationship between the futures price and the local spot price.
A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements I and II are correct.
D) Neither statement I nor II is correct.

Question

Quizplus · Accepted Answer

Both statements I and II are correct reasons why hedging can be difficult to do perfectly. Statement I highlights the issue of mismatch between futures contract sizes and the firm's specific hedging needs, while statement II points to the potential change in the basis, which is the relationship between futures prices and spot prices, making perfect hedging challenging.

Which of the Following Statements Is (Are) Correct About the Reasons