Hedging Strategies Quiz

What is a long futures hedge used for?

• To sell an asset in the future

• To lock in a price for a future purchase

• To minimize interest rate risks

• To speculate on price increases

Which of the following is an argument against hedging?

• It locks in prices for future transactions

• Shareholders can make their own hedging decisions

• It minimizes risks from market variables

• It helps companies focus on their main business

What is the spot price of crude oil on May 15 in the example?

• $60 per barrel

• $65 per barrel

• $59 per barrel

• $55 per barrel

What is the effective price per barrel for the oil producer if the spot price is $55?

• $65

• $60

• $59

• $55

What is the gain in futures if the price of oil on August 15 is $65?

• $6 million

• $10 million

• $0

• $4 million

What is a long hedge appropriate for?

• Selling an asset

• Purchasing an asset in the future

• Speculating on price drops

• Minimizing interest rate risks

How many futures contracts does the copper fabricator take for 100,000 pounds?

• 5 contracts

• 2 contracts

• 3 contracts

• 4 contracts

What is the gain in futures if the price of copper on May 15 is 325 cents?

• $20,000

• $15,000

• $10,000

• $5,000

What does cross hedging involve?

• Hedging with different assets

• Locking in prices for future purchases

• Using the same asset for hedging

• Minimizing risks from interest rates

What is the optimal hedge ratio based on?

• The market demand

• The price of the underlying asset

• The standard deviation of spot and futures prices

• The number of contracts