Which of the following correctly expresses the profit on a hedge?
A)the basis when the hedge is closed
B)the change in the basis
C)the spot profit minus the futures profit
D)the futures profit minus the spot profit
E)none of the above

Question

Quizplus · Accepted Answer

The profit on a hedge is correctly expressed as the change in the basis. The basis is the difference between the spot price of an asset and the future price of the same asset. The change in this difference over the period of the hedge reflects the profit or loss from the hedging activity.

Which of the Following Correctly Expresses the Profit on a Hedge