A perfect hedge contracts away all risk and creates a situation where any change in the market price is exactly offset by a profit or loss on the futures contract.

Question

Quizplus · Accepted Answer

A perfect hedge is designed to completely eliminate the risk associated with price movements in the underlying asset by taking an offsetting position in a futures contract, ensuring that any loss or gain in the asset's value is exactly matched by a gain or loss in the futures contract.

A Perfect Hedge Contracts Away All Risk and Creates a Situation