BANKING AFFAIRS

Detailed explanation-1: -Basis is the difference between the futures and spot prices and, for the purposes of recommending a hedging strategy, it is often assumed to diminish at a constant rate. Basis risk arises when the price of a futures contract does not have a predictable relationship with the spot price of the instrument being hedged.

Detailed explanation-2: -One of the most crucial and useful applications of Futures and Options trading is hedging. Hedging essentially means to limit the risk of an asset or a portfolio. It involves buying one instrument and subsequently selling the other to offset the risk.

Detailed explanation-3: -In a short-hedged position, the entity is seeking to sell a commodity in the future at a specified price. The company seeking to buy the commodity takes the opposite position on the contract known as the long-hedged position.

Detailed explanation-4: -What is a forward contract? A forward contract is a hedging product that allows you to secure an exchange rate over a set period of time on a predetermined volume of currency.