1)Why do firms hedge?

Group of answer choices

To reduce exposure to financial risk

Hedging provides more certain cashflows

Hedging increases profits

A and B

Which of the following statements is true?

2) Group of answer choices

In a short hedge you take a long position in the futures market

In a long hedge you take a short position in the futures market

In a short hedge you take a short position in the futures markets

In a long hedge you dont take any position in the futures market

3) What is basis risk?

Group of answer choices

The uncertainty that the basis of a futures contract will change resulting in a profit or loss.

Risk of the adverse movements of the underlying asset

Risk related to changes in option prices

The uncertainty that the basis of a forward contract will change resulting in a profit or loss.