When a futures contract is used to hedge a position where either the portfolio or the individual financial instrument is not identical to the instrument underlying the futures, it is called ________.

Question

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Cross hedging involves using a futures contract to hedge a position where the underlying instrument is not identical to what is being hedged. It is commonly used when a perfect hedge is not possible due to the unavailability of the appropriate instrument.

When a Futures Contract Is Used to Hedge a Position