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 statement I and II are correct
D)Neither statement I nor II is correct

Question

Quizplus · Accepted Answer

Statement I is correct because futures contracts have standardized sizes, so it may be difficult to find a contract size that matches the exact hedging needs of the firm. Statement II is also correct because the relationship between the futures price and the local spot price can change due to various factors such as market conditions or unforeseen events. These changes can affect the effectiveness of the hedge. Therefore, both statements are correct.

Which of the Following Statements Is/are Correct About the Reasons