Question: 4. (a) Explain what is meant by basis risk when futures contracts are used for hedging. (b) Suppose that the following delivery months are available

4. (a) Explain what is meant by basis risk when futures contracts are used for hedging. (b) Suppose that the following delivery months are available for barley futures contracts: March, May, July, October and December. Which contract should be used for hedging when the expiration of the hedge is in August? Explain you answer.

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