Hedging

Question 1

Which of the following reflects a profitable short hedge?

[A] A negative basis becomes more negative.
[B] The basis goes from positive to negative.
[C] A negative basis becomes less negative.
[D] None of the above.

Answer 1

[C] A negative basis becomes less negative.

Question 2

A firm that sells gasoline would hedge against a rise in crude oil prices by buying crude oil futures.

[A] True
[B] False

Answer 2

[A] True