1.A jewellery company has used futures markets to hedge the price of silver it will purchase over the next 5 years. Which of the following is true?

A)It is liable to experience liquidity problems if the price of silver rises dramatically or falls dramatically

B)It is liable to experience liquidity problems if the price of silver falls dramatically

C)It is liable to experience liquidity problems if the price of silver rises dramatically

D)The operation of futures markets protects it from liquidity problems

2.Which of the following is a NOT reason for hedging a portfolio with an index futures?

A)The investor believes the stocks in the portfolio will perform better than the market but is uncertain about the future performance of the market

B)The investor is planning to hold a portfolio for a long period of time and requires a short-term protection in an uncertain market situation

C)Index futures can be used to remove the impact of the performance of the overall market on the portfolio.

D)The investor believes the stocks in the portfolio will perform better than the market and the market is expected to do well

3.Which of the following describes tailing the hedge?

a)A more exact calculation of the hedge ratio when futures contracts are used for hedging

b)A strategy where the hedge position is increased at the end of the life of the hedge

c)A strategy where the hedge position is increased at the end of the life of the futures contract

d)None of the options