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1. A short hedge is one in which a. the margin requirement is waived b. the hedger is short...

Question:

1. A short hedge is one in which

a. the margin requirement is waived

b. the hedger is short futures

c. the hedger is short in the spot market

d. the futures price is lower than the spot price

e. none of the above

2. An anticipatory hedge is one in which

a. the basis is expected to fall

b. the hedger expects to make a profit on the futures

c. the spot position will be taken in the future

d. all of the above

e. none of the above

A strengthening of the basis means

a. the spot price rises more than the futures price

b. the futures price falls more than the spot price

c. a short hedger benefits

d. all of the above

e. none of the above

A hedge in which the asset underlying the futures is not the asset being hedged is

a. a cross hedge

b. an optimal hedge

c. a basis hedge

d. a minimum variance hedge

e. none of the above

When the futures expires before the hedge is terminated and the hedger moves into the next futures expiration, it is called

a. spreading the hedge

b. rolling the hedge forward optimally

c. weighting the hedge

d. all of the above

e. none of the above

The duration of the futures contract used in the price sensitivity hedge ratio is

a. the duration of the spot bond being hedged using the futures price instead of the spot price

b. the duration of the deliverable bond using the spot price

c. the duration of the deliverable bond using the futures price

d. the duration of the overall bond portfolio

e. none of the above

Which technique can be used to compute the minimum variance hedge ratio?

a. duration analysis

b. present value

c. regression

d. all of the above

e. none of the above

Which of the following measures is used in the price sensitivity hedge ratio for bond futures?

a. beta

b. duration

c. correlation

d. variance

e. none of the above

Suppose you buy an asset at $50 and sell a futures contract at $53. What is your profit at expiration if the asset price goes to $49? (Ignore carrying costs)

a. -$1

b. -$4

c. $3

d. $4

e. $5

Suppose you buy an asset at $70 and sell a futures contract at $72. What is your profit if, prior to expiration, you sell the asset at $75 and the futures price is $78?

a. $5

b. $2

c. $1

d. -$6

e. -$1

Hedge

A hedge is an investment position in one market that counterbalances the risk accepted by assuming a position in different market. Many types of financial instruments can be used to create a hedge.

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A short hedge is one in which (b) the hedger is short futures

An anticipatory hedge is one in which (c) the spot position will be taken in the...

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