If you take a futures position in a stock index futures to offset the risk of a market decline that affects your investment portfolio, you are
A) Doing am arbitrage trade
B) Doing a reserve trade
C) Creating a cross-hedge
D) Doing a close-out
E) Creating a "triple witch"

Question

Quizplus · Accepted Answer

Creating a cross-hedge involves taking a position in a futures contract that is different from the underlying asset in your investment portfolio but has a high correlation with it. In this scenario, taking a position in a stock index futures to offset the risk of a market decline is an example of creating a cross-hedge. Arbitrage trade involves exploiting price differences between two markets. Reserve trade and close-out are not relevant in this context, and "triple witch" refers to the expiration of stock index futures, stock index options, and stock options on the same day, which may lead to increased volatility but is not relevant to this scenario.

If You Take a Futures Position in a Stock Index