A long hedger will ________ from an increase in the basis; a short hedger will ________.
A) be hurt; be hurt
B) be hurt; profit
C) profit; be hurt
D) profit; profit

Question

Quizplus · Accepted Answer

A long hedger is someone who buys a futures contract to protect against price increases in the underlying asset. If the basis (difference between the futures price and the spot price) increases, their hedge will be less effective, causing them to lose money. On the other hand, a short hedger is someone who sells a futures contract to protect against price decreases in the underlying asset. If the basis increases, their hedge will become more effective, allowing them to profit. Therefore, a long hedger will be hurt by an increase in the basis, while a short hedger will profit.

A Long Hedger Will ________ from an Increase in the Basis;