explain your numerical working as you do them please Suppose a trader wants to set up a short hedge using the futures contract selected.

$($a$)$ Explain clearly any two $(2)$ reasons why hedging with futures contracts works less than

perfectly in practice.

$($b$)$ Explain what is meant by basis risk when futures contracts are used for hedging.

Using the same example as part $($a$),$ explain when a long hedge would be appropriate.

Using your own numerical example from the futures contract used, explain why a long

hedger$$s position worsens when the basis strengthens unexpectedly and improves when the

basis weakens unexpectedly.

NB: For this question, you would also need the $$spot$$ or $$cash$$ price. MINIMUM PRICE FLUCTUATION

$0\mathrm{.}0005$ per pound $=$ $$12\mathrm{.}50$

TAS$/$TAM: Zero or $+/-10$ ticks in the minimum tick increment of the outright

Spot TAS: Zero