A company is hedging the cost of a key raw material with a long futures position. Which of the following is true if the price of raw material increases?

A company is hedging the cost of a key raw material with a long futures position. Which of the following is true if the price of raw material increases?

Based on the magnitude of the increase, the company may have a liquidity issue.

If there is no basis risk, the effective price the company pays stay the same.

If the risk free rate increases faster than the price of the raw material, then the company's hedge will be ineffective.

The loss on the futures position will be reflected in the cost of goods sold..