Question
A company that purchases copper for its production facility is considering hedging its exposure via forward or futures contracts. Which of the following statements is
A company that purchases copper for its production facility is considering hedging its exposure via forward or futures contracts. Which of the following statements is false?
A. For a given maturity, futures and forward prices are likely to be approximately equal.
B. A futures position is more likely to expose the company to liquidity problems than an otherwise equivalent forward position.
C. A forward position is more likely to experience losses from counterparty default if the price of copper rises.
D. A futures hedge will incur losses if the basis (spot price-futures price) increases.
E. None of the above.
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