In: Finance
1. Under what circumstances are (a) a short hedge and (b) a long hedge appropriate?
2. Explain what is meant by basis risk when futures contracts are used for hedging.
3. Explain what is meant by a perfect hedge. Does a perfect hedge always lead to a betteroutcome than an imperfect hedge? Explain your answer.
4. Give three reasons why the treasurer of a company might not hedge the company’sexposure to a particular risk