medium · FRM Part 1 Financial Markets and Products
A hedge consists of being long the asset and short the futures.
If the basis (Spot - Futures) 'strengthens' (becomes more positive), what is the outcome for the hedger?
- A margin call will definitely be triggered.
- The hedger's position deteriorates.
- The hedger is unaffected due to perfect variance reduction.
- The hedger's position improves.
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