Question

When a hedger expects a price fall in the prices of the underlying asset?

1.a long hedge can be used to hedge the prices of underlying asset

2.a short hedge can be used to hedge the prices of underlying asset

3.all of the above

4.non of the above

Answer 1

Solution =

Here, a short hedge can be used to hedge the prices of underlying asset

A short hedge is one where a short position is taken on a futures contract. It is typically appropriate for a hedger to use when an asset is expected to be sold in the future. Alternatively, it can be used by a speculator who anticipates that the price of a contract will decrease.

A short hedge protects investors or traders against price declines.

Thus, from this it can be concluded that ans is option 2)

Ans - Option 2.a short hedge can be used to hedge the prices of underlying asset