Which of the following indicates the need to place a hedge?
A)The price movement in the underlying cash asset cannot be forecasted perfectly.
B)The prices of the assets or liabilities are imperfectly correlated over time with the prices on the futures.
C)Basis risk prevents the minimum risk of the portfolio from reaching zero.
D)Treasury has been issuing more shorter-dated bonds to finance U.S.budget deficits.

Question

Quizplus · Accepted Answer

Hedging is needed when the price movement in the underlying cash asset cannot be forecasted perfectly, as it helps manage the risk associated with unpredictable price changes.

Which of the Following Indicates the Need to Place a Hedge