Hull:Options,FuturesandOtherDerivatives,NinthEditionChapter3:HedgingStrategiesUsingFuturesMultipleChoiceTestBank:Questions1.Thebasisisdefinedasspotminusfutures.Atraderishedgingthesaleofanassetwithashortfuturesposition.Thebasisincreasesunexpectedly.Whichofthefollowingistrue?A.Thehedger’spositionimproves.B.Thehedger’spositionworsens.C.Thehedger’spositionsometimesworsensandsometimesimproves.D.Thehedger’spositionstaysthesame.2.Futurescontractstradewitheverymonthasadeliverymonth.AcompanyishedgingthepurchaseoftheunderlyingassetonJune15.Whichfuturescontractshouldituse?A.TheJunecontractB.TheJulycontractC.TheMaycontractD.TheAugustcontract3.OnMarch1acommodity’sspotpriceis$60anditsAugustfuturespriceis$59.OnJuly1thespotpriceis$64andtheAugustfuturespriceis$63.50.AcompanyenteredintofuturescontractsonMarch1tohedgeitspurchaseofthecommodityonJuly1.ItclosedoutitspositiononJuly1.Whatistheeffectiveprice(aftertakingaccountofhedging)paidbythecompany?A.$59.50B.$60.50C.$61.50D.$63.504.OnMarch1thepriceofacommodityis$1,000andtheDecemberfuturespriceis$1,015.OnNovember1thepriceis$980andtheDecemberfuturespriceis$981.AproducerofthecommodityenteredintoaDecemberfuturescontractsonMarch1tohedgethesaleofthecommodityonNovember1.ItclosedoutitspositiononNovember1.Whatistheeffectiveprice(aftertakingaccountofhedging)receivedbythecompanyforthecommodity?A.$1,016B.$1,001C.$981D.$1,0145.SupposethatthestandarddeviationofmonthlychangesinthepriceofcommodityAis$2.ThestandarddeviationofmonthlychangesinafuturespriceforacontractoncommodityB(whichissimilartocommodityA)is$3.Thecorrelationbetweenthefuturespriceandthecommoditypriceis0.9.WhathedgeratioshouldbeusedwhenhedgingaonemonthexposuretothepriceofcommodityA?A.0.60B.0.67C.1.45D.0.906.Acompanyhasa$36millionportfoliowithabetaof1.2.Thefuturespriceforacontractonanindexis900.Futurescontractson$250timestheindexcanbetraded.Whattradeisnecessarytoreducebetato0.9?A.Long192contractsB.Short192contractsC.Long48contractsD.Short48contracts7.Acompanyhasa$36millionportfoliow...
