Consider the following two statements: (i) Buying a futures contract to reduce risk close to delivery is called a short hedge.
(ii) The hedging decision is independent of market eﬃciency.
A)(i) is correct, (ii) is incorrect.
B)(ii) is correct, (i) is incorrect.
C)(i) and (ii) are both correct.
D)(i) and (ii) are both incorrect.
E)(i) and (ii) are both correct only if it is a forward contract.

Question

Quizplus · Accepted Answer

(i) is incorrect because buying a futures contract to reduce risk is called a long hedge, not a short hedge. (ii) is incorrect because the hedging decision can be influenced by market efficiency.

Consider the Following Two Statements: (I) Buying a Futures Contract