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 cross hedging. Cross hedging is common in asset/liability and portfolio management and in hedging a corporate bond issuance. Answer the below questions.
(a) Why is cross hedging common?
(b) What does it introduce?
(c) What two factors determine the effectiveness of a cross hedge?

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The Answer of 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 cross hedging. Cross hedging is common in asset/liability and portfolio management and in hedging a corporate bond issuance. Answer the below questions.
(a) Why is cross hedging common?
(b) What does it introduce?
(c) What two factors determine the effectiveness of a cross hedge?

When a Futures Contract Is Used to Hedge a Position