Reducing the number of futures contracts that are needed to hedge a cash position because of the interest income that is generated from reinvesting the marked-to-market cash flows generated by the futures contract is referred to as tail the hedge.

Question

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This statement is true. Tail the hedge refers to the practice of reducing the number of futures contracts needed to hedge a cash position by reinvesting the marked-to-market cash flows generated by the futures contract. This can help to reduce the overall cost of hedging and improve returns.

Reducing the Number of Futures Contracts That Are Needed to Hedge