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qaws [65]
3 years ago
9

g A decrease in the basis will __________ a long hedge and __________ a short hedger. Group of answer choices hurt; hurt hurt; b

enefit benefit; have no effect upon benefit; benefit benefit; hurt
Business
1 answer:
alekssr [168]3 years ago
7 0

Answer:

1. hurt

2. benefit

Explanation:

Given that a contract and an asset are to be converted in cash early, this implies that, basis risk exists and futures price and spot price should not move in lockstep before delivery date. However, a reduction in the basis will then hurt the long hedger and benefit the short hedger.

Hence, considering the nature of the hypothetical situation, a decrease in the basis will HURT a long hedge and BENEFIT a short hedge.

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