A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?
A)A perfect hedge
B)A straight hedge
C)A cross hedge
D)None of the above

Question

Quizplus · Accepted Answer

This is referred to as a cross hedge, where a futures instrument is used to hedge a cash or spot instrument that is not perfectly correlated. A perfect hedge would involve hedging with an instrument that perfectly mirrors the underlying asset, which is not the case in this scenario. A straight hedge is not a commonly used term in finance for this kind of situation.

A Futures Instrument,such as a T-Bill,can Be Used to Hedge