A cross hedge often has greater risk then a perfect hedge because:
A)futures and cash interest rates are perfectly positively correlated.
B)futures and cash interest rates are perfectly negatively correlated.
C)cross hedging uses a contract based on the identical underlying asset.
D)futures and cash interest rates may not move together.
E)b.and d.

Question

Quizplus · Accepted Answer

Cross hedging involves using a futures contract that is not based on the exact underlying asset being hedged. Therefore, the movement of the futures and cash interest rates may not always move in sync, leading to greater risk compared to a perfect hedge where the futures and cash interest rates are perfectly correlated.

A Cross Hedge Often Has Greater Risk Then a Perfect