Suppose you are a derivatives trader specializing in creating customized commodity

forward contracts for clients and then hedging your position with exchange$-$traded

futures contracts. Your latest position is an agreement to deliver $100,000$ gallons of

unleaded gasoline to a client in three months.

a$.$ Explain how you can hedge your position using gasoline futures contracts.

b$.$ If the only available gasoline futures contracts call for the delivery of $42,000$

gallons and mature in either two or four months, describe the nature of the

basis risk involved in your hedge.