Which of the following is a true statement?
A) A long hedge involves the purchase of futures contracts before the investor must buy the actual securities
B) The purpose of a long hedge is to guarantee a desired yield
C) The immediate sale of financial futures contracts is characteristic of a short hedge
D) A combined transaction between the spot and futures markets using different types of securities in each is a cross hedge
E) All of the above

Question

Quizplus · Accepted Answer

All the statements provided are true regarding their respective hedging strategies. A long hedge involves buying futures to protect against price increases in the future. A long hedge can indeed be used to lock in yields or prices. A short hedge involves selling futures to protect against price decreases. A cross hedge involves hedging a position with a futures contract in a different but related asset, which can involve different securities in the spot and futures markets.

Which of the Following Is a True Statement