A company wants to use a forward contract or a futures contract to hedge a future sale of gold. Is the company better off using a futures contract or a forward contract when the price of gold first falls quickly and then increases back to its initial value during the life of the contract?

a. There is not enough information to decide. b. There is no difference when to use forward or futures. c. Forward contract

d. futures contract

A hedge reduces risk because the futures price is less volatile than the spot price.

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If the target beta exceeds the underlyings beta, then the manager will go long the futures contract.

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Stock index futures contracts are terminated by delivering the portfolio of stocks represented by the index.

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An investor who expects to purchase stock at a later date would use a short hedge to protect against stock price movements.

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Consider a 3-month forward contract on IBM. Suppose that current stock price of IBM is $152. IBM is going to issue $2 dividend in one month. Then the fair forward price is equal to the future value of $152 minus the future value of $2.

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Credit risk is handled in forward markets by daily marking-to-market.

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A short hedger benefits from strengthening basis.

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A convenience yield is an explanation for a negative cost of carry.

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