Which of the following statements is TRUE?A long position is taken in a forward or futures market by a hedger when:

Select one:

a.The hedger has a liability to pay in a foreign currency at a future date and wishes to fix the exchange rate today so that it does not lose from an increase in the exchange rate

b.The hedger needs to buy a certain amount of commodity for its manufacturing process at a future date and wants to lock in a price for the commodity today

c.The hedger has a natural short position in the underlying market variable

d.All of the above

A grower is intending to sell cotton at a certain future date and enters a hedge using a futures contract for the delivery of 50,000 pounds of cotton at a futures price of $0.50 per pound. The current spot price is $0.45 per pound. Before expiry the contract is closed out when the futures price is $0.55 and the spot price is $0.52.What is the effective sale price for the grower?

Select one:

a.$0.52 per pound

b.$0.53 per pound

c.$0.47 per pound

d.$0.55 per pound

A strengthening in basis decreases the effective cost of buying an asset in the future when hedged with a long futures position because the difference between the spot price and future price is decreased at close-out.

Select one:

True

False