2

Question 4

1. Which of the following statement is TRUE? I. An investor who expects to purchase stock at a later date would use a short hedge to protect against stock price movements. II. Although a hedge might not be perfect, it should be partially effective if the spot and futures prices move in opposite directions.

   		I
   		Both I and II are true.
   		Both I and II are not true.
   		II

1. Basis is defined as the ____ price minus the ____ price. Basis risk ____ borne by the hedger.

   		spot, futures, is
   		spot, futures, is not
   		futures, spot, is not
   		futures, spot, is

Question 3

1. Which of the following statement is TRUE? I. The liquidity of the futures contract used in a hedge is very important to the hedger. II. A hedger should select a contract that expires the same month as the date on which the hedge is terminated.

   		Both I and II are true.
   		Both I and II are not true.
   		II
   		I