Question: 1) When the basis unexpectedly strengthens (increases), does a short hedgers position improve or worsen? Does a long hedgers position improve or worsen? A. Improves

1) When the basis unexpectedly strengthens (increases), does a short hedgers position improve or worsen? Does a long hedgers position improve or worsen?

A. Improves for short hedger and worsens for long hedger B. Worsens for short hedger and improves for long hedger C. No effect for both short hedger and long hedger D. None of above.

2) What basis should you observe at the expiration of a futures contract (if the asset to be hedged and the asset underlying the futures are the same)?

A. Zero B. Positive C. Negative D. It can be any of above.

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