Question
Questions 9 to 14 are based on the following information: On March 1 a commoditys spot price is $59 and its August futures price is
Questions 9 to 14 are based on the following information:
On March 1 a commoditys spot price is $59 and its August futures price is $60. On July 1 the spot price is $65 and the August futures price is $64.
Question 12 (1 point)
What would be the prices received or paid by companies A and B without hedging?
Question 12 options:
| Both are $59. |
| Both are $60. |
| Both are $64. |
| Both are $65. |
Question 13 (1 point)
What are the performances of these two companies relative to the situation without any hedging?
Question 13 options:
| Company A does better with hedging than without hedging; company B does worse with hedging than without hedging |
| Company A does worse with hedging than without hedging; company B does better with hedging than without hedging |
| Both companies do better with hedging |
| Both companies do worse with hedging |
Question 14 (1 point)
What is the effect of basis risk on these two companies?
Question 14 options:
| Due to basis risk, company A gets unexpected profit while company B gets unexpected loss. |
| Due to basis risk, company A gets unexpected loss while company B gets unexpected profit. |
| Both companies suffer from unexpected loss due to basis risk. |
| Both companies enjoy unexpected profit due to basis risk. |
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