In using futures contracts for hedging which of the following is an important consideration?
A) The standard contract size
B) The margin payment
C) The basis risk
D) All of the given choices

Question

Quizplus · Accepted Answer

All of the given choices are important considerations when using futures contracts for hedging. The standard contract size determines what quantity of the underlying asset is being hedged. The margin payment is the amount required to be deposited by the trader to cover potential losses. The basis risk refers to the risk that the cash price and futures price may not move in the same direction, resulting in losses for the hedger. All of these must be taken into account when hedging with futures contracts.

In Using Futures Contracts for Hedging Which of the Following