{"metadata":{"generator":"Captivate","generatorVersion":"11.8.0","schemaVersion":"","author":"Deborah Diamanti","title":"Series-3-Basics","description":"Series 3 Exam Prep. Module 1. Topics include: Futures, Basis Grade, Long and Short Position, Stock Exchanges, Clearinghouse, Speculators & Hedgers, Buying on Margin, Execution, Clearing and Settlement.","email":"info@examsecuritiesprep.com","website":"www.examsecuritiesprep.com","tags":"","thumbnail":"","source":"assets","durationInFrames":112356,"frameRate":30,"totalSlides":88,"width":880,"height":660,"responsive":false,"scalable":true,"launchFile":"index.html","isVRProject":false},"contentStructure":[{"id":"Text_Caption_5","class":"TODO::Senthil","instance":"Text_Caption_5","title":"ESP Exam Securities Prep, Inc. Copyright © 2022. All rights reserved. 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Now he can focus on his primary business, which is the conversion of wheat into flour, and the sale of the flour at a competitive price that's reasonable and allows him to cover his costs at a profit. 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He enters into a contract to sell wheat at the current price for delivery at a fixed price in the future.     If he chooses to purchase the wheat and hold it until the required time to export the wheat, he won’t have the risk of price change because he's long the actual commodity against a sale that he’s already made at a fixed price.    Jim decides not to purchase the wheat at the time he makes the sale. However, he’s concerned that the price of wheat could possibly rise above his sell price to a level that would be devastating for his business.    What do you think Jim should do? 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Once he’s hedged his position, he can move on with his primary business of processing and exporting of the cash wheat without the stress of worrying about the rising price of wheat. 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If he's long cash, he will sell futures.   If the hedger is short cash (he has committed himself to the sale of the actual commodity at a fixed price, but does not have possession of the actual commodity at the time of the sale), he will buy futures. 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If he's long cash, he will sell futures. If the hedger is short cash (he has committed himself to the sale of the actual commodity at a fixed price, but does not have possession of the actual commodity at the time of the sale), he will buy futures. 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A hedger always takes a position in the futures market that's opposite to his position in the cash market. If he's long cash, he will sell futures. If the hedger is short cash (he has committed himself to the sale of the actual commodity at a fixed price, but does not have possession of the actual commodity at the time of the sale), he will buy futures. Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si299056","class":"TODO::Senthil","instance":"Text_Caption_516","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide299070","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2077","Image_1455","si298907","si298922","si298933","si298968","si298980","si298992"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide299070"},"question":{"interactionId":"298860","quizId":733,"title":"True/False","text":"In other words, a hedger always takes a position in the futures market that's opposite to his position in the cash market. If he's long cash, he will sell futures. If the hedger is short cash (he has committed himself to the sale of the actual commodity at a fixed price, but does not have possession of the actual commodity at the time of the sale), he will buy futures.\r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"]}}},{"id":"Image_1333","class":"TODO::Senthil","instance":"Image_1333","roles":{"click":{"subtype":"button"},"question":{"interactionId":"279082","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2306","class":"TODO::Senthil","instance":"Button_2306","roles":{"click":{"subtype":"button"}}},{"id":"si279140","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si279153","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2307","class":"TODO::Senthil","instance":"Button_2307","roles":{"click":{"subtype":"button"}}},{"id":"si279191","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si279204","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_1962","class":"TODO::Senthil","instance":"Text_Caption_1962","title":"For instance, if you are long shares of Acme Corp., you can buy a put option to protect your investment from large downside moves. To purchase an option you have to pay its premium.  A reduction in risk, therefore, always means a reduction in potential profits. So, hedging, for the most part, is a technique that is meant to reduce a potential loss (and not maximize a potential gain). If the investment you are hedging against makes money, you have also usually reduced your potential profit. However, if the investment loses money, and your hedge was successful, you will have reduced your loss. 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Two of the most common derivatives are options and futures. With derivatives, you can develop trading strategies where a loss in one investment is offset by a gain in a derivative.  Let’s say you own shares of Micron Technology (ticker: MU). While you believe Micron is a solid company, you are worried about some short-term losses in the microchip industry. To protect yourself from a fall in MU, you can buy a put option on Micron, which gives you the right to sell MU at a specific price (also called the strike price). This strategy is known as a married put. If your stock price tumbles below the strike price, these losses will be offset by gains in the put option.  Another classic hedging example involves a company that depends on a certain commodity. Suppose that Micron is worried about the volatility in the price of silicon. The company would be in deep trouble if the price of silicon were to skyrocket because this would severely impact their profits. 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A futures contract is a type of hedging instrument that allows the company to buy the silicon at a specific price at a set date in the future. Now, Micron can budget without worrying about the fluctuating price of silicon.  If silicon rises above the price specified by the futures contract, this hedging strategy will have paid off because Micron will save money by paying the lower price. However, if the price goes down, Micron is still obligated to pay the price in the contract. They would have been better off not hedging against this risk.  Because there are so many different types of options and futures contracts, an investor can hedge against nearly anything, including stocks, commodities, interest rates, or currencies. 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So, before you decide to use hedging, you should ask yourself if the potential benefits justify the expense. The goal of hedging isn't to make money; it's to protect from losses. The cost of the hedge, whether it is the cost of an option–or lost profits from being on the wrong side of a futures contract–can't be avoided.  While it's tempting to compare hedging to insurance, insurance is far more precise. With insurance, you are completely compensated for your loss (usually minus a deductible). Hedging a portfolio isn't a perfect science. Things can easily go wrong. Although risk managers are always aiming for the perfect hedge, it is very difficult to achieve in practice. 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Two of the most common derivatives are options and futures. With derivatives, you can develop trading strategies where a loss in one investment is offset by a gain in a derivative. 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Hedging techniques generally involve the use of financial instruments known as derivatives. Two of the most common derivatives are options and futures. With derivatives, you can develop trading strategies where a loss in one investment is offset by a gain in a derivative. Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si299285","class":"TODO::Senthil","instance":"Text_Caption_517","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide299299","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2078","Image_1456","si299136","si299151","si299162","si299197","si299209","si299221"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide299299"},"question":{"interactionId":"299085","quizId":733,"title":"True/False","text":"Hedging techniques generally involve the use of financial instruments known as derivatives. 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Popular hedging techniques involve taking offsetting positions in derivatives that correspond to an existing position.  Other types of hedges can be constructed via other means like diversification. An example could be investing in both cyclical and countercyclical stocks.  Besides protecting an investor from various types of risk, it is believed that hedging makes the market run more efficiently. 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A short hedge helps to protect against a decline in the spot price of the underlying asset. For instance, a farmer is growing 5,000 bushels of corn for delivery in September. In June, he takes a short position in a corn futures contract for 5,000 bushels at the price of $5.20 a bushel. Consider several possibilities:  FUTURES CONTRACT PRICE - $26,000    BUSHELS OF CORN - 5,000 ","roles":{"textData":{}}},{"id":"Text_Caption_1979","class":"TODO::Senthil","instance":"Text_Caption_1979","title":"SHORT HEDGE ","roles":{"textData":{}}},{"id":"Image_1347","class":"TODO::Senthil","instance":"Image_1347","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Text_Caption_1980","class":"TODO::Senthil","instance":"Text_Caption_1980","title":"If the price of corn drops to $4.20 a bushel, then the farmer will receive $5,000 less without the futures contract. With the futures contract, a loss on the corn is compensated by the increase in the value of the futures contract.   If the price of corn increases to $6.20 a bushel, then the farmer receives $5000 more for his corn but loses the same amount on the futures contract, so the net value remains $26,000. 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A long hedge helps to protect against increases in the spot price of the underlying asset.   For example, a business in the United States signs a contract with a business in Europe in which the American business will receive €1,250,000 in December, which at the current exchange rate of $1.30 for each euro, is $1,625,000, which covers the cost of production and includes a small profit. Futures can protect this business's profit when the exchange rate changes, as it always does: ","roles":{"textData":{}}},{"id":"Text_Caption_1982","class":"TODO::Senthil","instance":"Text_Caption_1982","title":"LONG HEDGE ","roles":{"textData":{}}},{"id":"Image_1351","class":"TODO::Senthil","instance":"Image_1351","roles":{"click":{"subtype":"button"},"question":{"interactionId":"281529","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2453","class":"TODO::Senthil","instance":"Button_2453","roles":{"click":{"subtype":"button"}}},{"id":"si293684","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si293713","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide281285","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2330","si281114","si281127","Button_2331","si281165","si281178","Text_Caption_1981","Text_Caption_1982","Image_1351","Button_2453","si293684","si293713"],"roles":{"slide":{"durationInFrames":1605},"navigation":{"navid":"Slide281285"}}},{"id":"Button_2333","class":"TODO::Senthil","instance":"Button_2333","roles":{"click":{"subtype":"button"}}},{"id":"si281357","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si281370","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2334","class":"TODO::Senthil","instance":"Button_2334","roles":{"click":{"subtype":"button"}}},{"id":"si281408","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si281421","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_1984","class":"TODO::Senthil","instance":"Text_Caption_1984","title":"If the business entered a futures contract for the foreign exchange rate of $1.30 per euro, then it can be guaranteed that it will receive $1,625,000 in December regardless of the exchange rate.   If the exchange rate drops to $1.15 per euro, then the business will receive $187,500 less, but it will profit from its futures contracts with a gain of $187,500, yielding a total net value of $1,625,000. 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A long hedge helps to protect against a decline in the spot price of the underlying asset. ","roles":{"textData":{}}},{"id":"si299376","class":"TODO::Senthil","instance":"Text_Caption_595","title":"A) ","roles":{"textData":{}}},{"id":"si299380","class":"TODO::Senthil","instance":"Text_Caption_596","title":"True ","roles":{"textData":{}}},{"id":"si299376_a","class":"TODO::Senthil","instance":"68_95","roles":{"answer":{"title":"True","index":"Not implemented","score":{"weight":0}}}},{"id":"si299387","class":"TODO::Senthil","instance":"Text_Caption_597","title":"B) ","roles":{"textData":{}}},{"id":"si299391","class":"TODO::Senthil","instance":"Text_Caption_598","title":"False ","roles":{"textData":{}}},{"id":"si299387_a","class":"TODO::Senthil","instance":"70_96","roles":{"answer":{"title":"False","index":"Not implemented","score":{"weight":0}}}},{"id":"si299426","class":"TODO::Senthil","instance":"Button_180","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide299528q3","for":"Slide299528q3"},"textData":{}}},{"id":"si299438","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide299528q3","for":"Slide299528q3"},"textData":{}}},{"id":"si299450","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide299528q3","for":"Slide299528q3"},"textData":{}}},{"id":"si299482","class":"TODO::Senthil","instance":"Text_Caption_599","title":"Incorrect - The correct answer is False. A hedger will go short when he owns or produces the underlying asset and expects to sell it at a later time. A short hedge helps to protect against a decline in the spot price of the underlying asset. Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si299514","class":"TODO::Senthil","instance":"Text_Caption_518","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide299528","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2079","Image_1457","si299365","si299380","si299391","si299426","si299438","si299450"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide299528"},"question":{"interactionId":"299318","quizId":733,"title":"True/False","text":"A hedger will go long when he owns or produces the underlying asset and expects to sell it at a later time. A long hedge helps to protect against a decline in the spot price of the underlying asset.\r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["B"]}}},{"id":"Button_2493","class":"TODO::Senthil","instance":"Button_2493","roles":{"click":{"subtype":"button"}}},{"id":"si301891","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si301904","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2494","class":"TODO::Senthil","instance":"Button_2494","roles":{"click":{"subtype":"button"}}},{"id":"si301942","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si301955","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2092","class":"TODO::Senthil","instance":"Text_Caption_2092","title":"REVIEW ","roles":{"textData":{}}},{"id":"Text_Caption_2093","class":"TODO::Senthil","instance":"Text_Caption_2093","title":"Short & Long Hedge ","roles":{"textData":{}}},{"id":"Line_47","class":"TODO::Senthil","instance":"Line_47","roles":{}},{"id":"Image_1471","class":"TODO::Senthil","instance":"Image_1471","roles":{"click":{"subtype":"button"},"question":{"interactionId":"301990","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2495","class":"TODO::Senthil","instance":"Button_2495","roles":{"click":{"subtype":"button"}}},{"id":"si302033","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si302047","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide302063","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2493","si301891","si301904","Button_2494","si301942","si301955","Text_Caption_2092","Text_Caption_2093","Image_1471","Button_2495","si302033","si302047"],"roles":{"slide":{"durationInFrames":600},"navigation":{"navid":"Slide302063"}}},{"id":"Button_2496","class":"TODO::Senthil","instance":"Button_2496","roles":{"click":{"subtype":"button"}}},{"id":"si302118","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si302131","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2497","class":"TODO::Senthil","instance":"Button_2497","roles":{"click":{"subtype":"button"}}},{"id":"si302169","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si302182","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2094","class":"TODO::Senthil","instance":"Text_Caption_2094","title":"REVIEW - SHORT & LONG HEDGE ","roles":{"textData":{}}},{"id":"Text_Caption_2095","class":"TODO::Senthil","instance":"Text_Caption_2095","title":"A short hedge: A short hedge protects investors or traders against price declines in the future. It is a trading strategy that takes a short position in an asset where the investor or trader is already long. Commodity producers can similarly use a short hedge to lock in a known selling price today so that future price fluctuations will not matter for their operations. A short hedge is the opposite of a long hedge, which protects against rising prices.  A long hedge: A long hedge refers to a futures position that is entered into for the purpose of price stability on a purchase.  Long hedges are often used by manufacturers and processors to remove price volatility from the purchase of required inputs. These input-dependent companies know they will require materials several times a year, so they enter futures positions to stabilize the purchase price throughout the year. 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The definition of an imperfect hedge is: hedger's gain and loss in the spot and futures market are not fully offset and the hedger will end up with some gain or loss. This is called imperfect hedge. However, the gain or loss of hedging will be much less than not utilizing hedge.  It's actually infrequent that changes in the price of cash and the price of futures will be exactly the same. The price of cash may change more or less than the price of futures.    ","roles":{"textData":{}}},{"id":"Text_Caption_1967","class":"TODO::Senthil","instance":"Text_Caption_1967","title":"IMPERFECT HEDGE ","roles":{"textData":{}}},{"id":"Image_1352","class":"TODO::Senthil","instance":"Image_1352","roles":{"click":{"subtype":"button"},"question":{"interactionId":"281552","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2455","class":"TODO::Senthil","instance":"Button_2455","roles":{"click":{"subtype":"button"}}},{"id":"si293866","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si293895","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide279738","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2312","si279585","si279598","Button_2313","si279636","si279649","Text_Caption_1966","Text_Caption_1967","Image_1352","Button_2455","si293866","si293895"],"roles":{"slide":{"durationInFrames":1230},"navigation":{"navid":"Slide279738"}}},{"id":"Button_2514","class":"TODO::Senthil","instance":"Button_2514","roles":{"click":{"subtype":"button"}}},{"id":"si303598","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si303611","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2515","class":"TODO::Senthil","instance":"Button_2515","roles":{"click":{"subtype":"button"}}},{"id":"si303649","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si303662","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2110","class":"TODO::Senthil","instance":"Text_Caption_2110","title":"IMPERFECT HEDGE ","roles":{"textData":{}}},{"id":"Image_1487","class":"TODO::Senthil","instance":"Image_1487","roles":{"click":{"subtype":"button"},"question":{"interactionId":"303693","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2516","class":"TODO::Senthil","instance":"Button_2516","roles":{"click":{"subtype":"button"}}},{"id":"si303736","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si303750","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2111","class":"TODO::Senthil","instance":"Text_Caption_2111","title":"In July, the price of wheat is expected to decline if there's a large harvest. However, this doesn't mean that the price of futures for the following May will decline by the same amount.   The selling pressure of the harvest, with farmers selling large amounts at harvest time to raise money to repay loans and to prepare for the next planting season, will cause prices to decline.   This will not be reflected in May, which is the end of the crop year. Therefore, the price of May wheat futures may not decline as much as the price of July wheat futures.   Conversely, there may be a strong demand for a commodity, such as soybeans in August, with a substantial price rise.   However, the price of December soybean futures may not rise as much because traders anticipate that the new crop (the crop year for soybeans begins September 1) will be sufficient and the futures will reflect the new harvest and the new conditions. 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In our previous examples the position in the cash market was always offset exactly by a position in the futures market. However, as futures always trade in round lots, it's possible that the hedger may not be able to hedge his exact position.   If the amount of cash wheat that he owns is 118,000 bushels, the hedger will be faced with the choice of hedging either 115,000 bushels or 120,000 bushels. If he hedges 115,000 bushels, he's exposed to a possible loss on the long side on 3,000 unhedged bushels. If he hedges 120,000 bushels, he's exposed to risk on 2,000 bushels on the short side. ","roles":{"textData":{}}},{"id":"Text_Caption_1987","class":"TODO::Senthil","instance":"Text_Caption_1987","title":"IMPERFECT HEDGE ","roles":{"textData":{}}},{"id":"Image_1353","class":"TODO::Senthil","instance":"Image_1353","roles":{"click":{"subtype":"button"},"question":{"interactionId":"281763","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2456","class":"TODO::Senthil","instance":"Button_2456","roles":{"click":{"subtype":"button"}}},{"id":"si293957","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si293986","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide281787","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2336","si281621","si281634","Button_2337","si281672","si281685","Text_Caption_1986","Text_Caption_1987","Image_1353","Button_2456","si293957","si293986"],"roles":{"slide":{"durationInFrames":1884},"navigation":{"navid":"Slide281787"}}},{"id":"Text_Caption_2080","class":"TODO::Senthil","instance":"Text_Caption_2080","title":"KNOWLEDGE CHECK ","roles":{"textData":{}}},{"id":"Image_1458","class":"TODO::Senthil","instance":"Image_1458","roles":{"click":{"subtype":"button","question":"Slide299757q4"},"textData":{}}},{"id":"si299594","class":"TODO::Senthil","instance":"Text_Caption_600","title":"The definition of an imperfect hedge is: hedger's gain and loss in the spot and futures market are not fully offset and the hedger will end up with some gain or loss. This is called imperfect hedge. However, the gain or loss of hedging will be much less than not utilizing hedge. ","roles":{"textData":{}}},{"id":"si299605","class":"TODO::Senthil","instance":"Text_Caption_601","title":"A) ","roles":{"textData":{}}},{"id":"si299609","class":"TODO::Senthil","instance":"Text_Caption_602","title":"True ","roles":{"textData":{}}},{"id":"si299605_a","class":"TODO::Senthil","instance":"68_97","roles":{"answer":{"title":"True","index":"Not implemented","score":{"weight":0}}}},{"id":"si299616","class":"TODO::Senthil","instance":"Text_Caption_603","title":"B) ","roles":{"textData":{}}},{"id":"si299620","class":"TODO::Senthil","instance":"Text_Caption_604","title":"False ","roles":{"textData":{}}},{"id":"si299616_a","class":"TODO::Senthil","instance":"70_98","roles":{"answer":{"title":"False","index":"Not implemented","score":{"weight":0}}}},{"id":"si299655","class":"TODO::Senthil","instance":"Button_181","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide299757q4","for":"Slide299757q4"},"textData":{}}},{"id":"si299667","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide299757q4","for":"Slide299757q4"},"textData":{}}},{"id":"si299679","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide299757q4","for":"Slide299757q4"},"textData":{}}},{"id":"si299711","class":"TODO::Senthil","instance":"Text_Caption_605","title":"Incorrect - The correct answer is True. The definition of an imperfect hedge is: hedger's gain and loss in the spot and futures market are not fully offset and the hedger will end up with some gain or loss. This is called imperfect hedge. However, the gain or loss of hedging will be much less than not utilizing hedge. Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si299743","class":"TODO::Senthil","instance":"Text_Caption_519","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide299757","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2080","Image_1458","si299594","si299609","si299620","si299655","si299667","si299679"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide299757"},"question":{"interactionId":"299543","quizId":733,"title":"True/False","text":"The definition of an imperfect hedge is: hedger's gain and loss in the spot and futures market are not fully offset and the hedger will end up with some gain or loss. This is called imperfect hedge. However, the gain or loss of hedging will be much less than not utilizing hedge.\r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"]}}},{"id":"Button_2342","class":"TODO::Senthil","instance":"Button_2342","roles":{"click":{"subtype":"button"}}},{"id":"si282061","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si282074","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2343","class":"TODO::Senthil","instance":"Button_2343","roles":{"click":{"subtype":"button"}}},{"id":"si282112","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si282125","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_1990","class":"TODO::Senthil","instance":"Text_Caption_1990","title":"Futures Reflect the Price of the Basis Grade With the price of the futures changing at a rate that doesn't exactly coincide with a change in the cash market, another reason why a hedge may be less than perfect is that futures reflect the price of the basis grade, whereas cash market transactions may be in grades that are other than the basis grade.   While it's generally true that the price of all grades of corn will rise or fall simultaneously, the amount of price change in the different grades may not always be exactly the same.   The price of futures reflects the basis grade, with allowance for delivery of a better grade at a premium or an inferior grade at a discount. 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With the price of the futures changing at a rate that doesn't exactly coincide with a change in the cash market, another reason why a hedge may be less than perfect is that futures reflect the price of the basis grade, whereas cash market transactions may be in grades that are other than the basis grade.  Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si299972","class":"TODO::Senthil","instance":"Text_Caption_520","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide299986","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2081","Image_1459","si299823","si299838","si299849","si299884","si299896","si299908"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide299986"},"question":{"interactionId":"299776","quizId":733,"title":"True/False","text":"With the price of the futures changing at a rate that doesn't exactly coincide with a change in the cash market, another reason why a hedge may be less than perfect is that futures reflect the price of the basis grade, whereas cash market transactions may be in grades that are other than the basis grade. \r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"]}}},{"id":"Button_2345","class":"TODO::Senthil","instance":"Button_2345","roles":{"click":{"subtype":"button"}}},{"id":"si282281","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si282294","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2346","class":"TODO::Senthil","instance":"Button_2346","roles":{"click":{"subtype":"button"}}},{"id":"si282332","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si282345","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_1992","class":"TODO::Senthil","instance":"Text_Caption_1992","title":"Corn Premium Let's assume that the corn sold by an exporter required a premium of $0.01 per bushel when delivered on a futures contract.   The price of the corn advanced to $1.60, while the price of futures advanced to $1.70.   However, the price of the specific grade of com that the exporter sold may have advanced $0.11, while the price of the basis grade, which is the grade of the futures on the exchange, only advanced by $0.10. Therefore, the exporter will have a loss of $0.01 on each bushel.   The fact that demand for a particular grade of corn is stronger than for the basis grade made the hedge less than perfect.  ","roles":{"textData":{}}},{"id":"Text_Caption_1993","class":"TODO::Senthil","instance":"Text_Caption_1993","title":"IMPERFECT HEDGE ","roles":{"textData":{}}},{"id":"Image_1357","class":"TODO::Senthil","instance":"Image_1357","roles":{"click":{"subtype":"button"},"question":{"interactionId":"282453","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2458","class":"TODO::Senthil","instance":"Button_2458","roles":{"click":{"subtype":"button"}}},{"id":"si294139","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si294168","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide282447","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2345","si282281","si282294","Button_2346","si282332","si282345","Text_Caption_1992","Text_Caption_1993","Image_1357","Button_2458","si294139","si294168"],"roles":{"slide":{"durationInFrames":1725},"navigation":{"navid":"Slide282447"}}},{"id":"Button_2348","class":"TODO::Senthil","instance":"Button_2348","roles":{"click":{"subtype":"button"}}},{"id":"si282532","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si282545","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2349","class":"TODO::Senthil","instance":"Button_2349","roles":{"click":{"subtype":"button"}}},{"id":"si282583","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si282596","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_1994","class":"TODO::Senthil","instance":"Text_Caption_1994","title":"So far, we’ve focused on hedging by primary users or producers of commodities, such as farmers, grain elevator operators and exporters. Remember, it's also possible for secondary users of commodities to hedge, but these hedges may not be as effective because they cannot hedge the actual product they're manufacturing.   One example is the baker who uses wheat to manufacture bread could use the futures market to hedge wheat. However, since his end product is bread rather than wheat, the hedge may not be fully effective since there are factors in the manufacture of bread, such as labor costs and other overhead, that would not be reflected in the futures price of wheat.   For this reason, the hedge may not be as effective as it would be for a primary producer or user, although it could still provide a significant degree of protection for the secondary user. ","roles":{"textData":{}}},{"id":"Text_Caption_1995","class":"TODO::Senthil","instance":"Text_Caption_1995","title":"IMPERFECT HEDGE ","roles":{"textData":{}}},{"id":"Image_1358","class":"TODO::Senthil","instance":"Image_1358","roles":{"click":{"subtype":"button"},"question":{"interactionId":"282675","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2459","class":"TODO::Senthil","instance":"Button_2459","roles":{"click":{"subtype":"button"}}},{"id":"si294230","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si294259","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide282698","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2348","si282532","si282545","Button_2349","si282583","si282596","Text_Caption_1994","Text_Caption_1995","Image_1358","Button_2459","si294230","si294259"],"roles":{"slide":{"durationInFrames":2175},"navigation":{"navid":"Slide282698"}}},{"id":"Button_2351","class":"TODO::Senthil","instance":"Button_2351","roles":{"click":{"subtype":"button"}}},{"id":"si282752","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si282765","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2352","class":"TODO::Senthil","instance":"Button_2352","roles":{"click":{"subtype":"button"}}},{"id":"si282803","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si282816","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_1996","class":"TODO::Senthil","instance":"Text_Caption_1996","title":"Why a Hedge May Not Always be Perfect Reasons that a hedge may not always be perfect and still result in a loss due to price change:  The price in the cash market and the price in the futures market may not change by the same amount, although they will usually change in the same direction.  The price of grades other than the basis grade may change differently than the price of the basis grade.  The size of futures contracts is in round lots and it may not be possible to fully hedge a position.  Secondary users cannot hedge against the product that they manufacture and must hedge against the primary product, which may change in price at a rate that differs from the product that they manufacture.  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The price in the cash market and the price in the futures market may not change by the same amount, although they will usually change in the same direction.  Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si300201","class":"TODO::Senthil","instance":"Text_Caption_521","title":"Correct - Click anywhere or press ‘y’ to continue. 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Other grades are deliverable at a premium or discount.  Basis The term basis is also used to describe the difference in price between the cash commodity and the price of the nearest futures delivery month.   If the price of cash is $1.50 and the price of futures is $1.60, the basis is $0.10 under. If the price of the cash commodity is $2.20 and the price of futures is $2.15, the basis is $0.05 over. ","roles":{"textData":{}}},{"id":"Text_Caption_2003","class":"TODO::Senthil","instance":"Text_Caption_2003","title":"UNDERSTANDING BASIS ","roles":{"textData":{}}},{"id":"Image_1363","class":"TODO::Senthil","instance":"Image_1363","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Image_1364","class":"TODO::Senthil","instance":"Image_1364","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Text_Caption_2004","class":"TODO::Senthil","instance":"Text_Caption_2004","title":"The basis is always the relationship of the price of the cash commodity to the price of futures, but not the other way around. In other words, if the basis is \"$0.10 under,\" this means that cash is $0.10 under futures. If the basis is \"$0.05 over,\" this means that cash is $0.05 over futures. 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In other words, if the basis is \"$0.10 under,\" this means that cash is $0.10 under futures. If the basis is \"$0.05 over,\" this means that cash is $0.05 over futures. 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The basis is always the relationship of the price of the cash commodity to the price of futures, but not the other way around. In other words, if the basis is \"$0.10 under,\" this means that cash is $0.10 under futures. If the basis is \"$0.05 over,\" this means that cash is $0.05 over futures.  Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si300430","class":"TODO::Senthil","instance":"Text_Caption_522","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide300444","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2083","Image_1461","si300281","si300296","si300307","si300342","si300354","si300366"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide300444"},"question":{"interactionId":"300234","quizId":733,"title":"True/False","text":"The basis is always the relationship of the price of the cash commodity to the price of futures, but not the other way around. In other words, if the basis is \"$0.10 under,\" this means that cash is $0.10 under futures. If the basis is \"$0.05 over,\" this means that cash is $0.05 over futures.\r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"]}}},{"id":"Button_2505","class":"TODO::Senthil","instance":"Button_2505","roles":{"click":{"subtype":"button"}}},{"id":"si302843","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si302856","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2506","class":"TODO::Senthil","instance":"Button_2506","roles":{"click":{"subtype":"button"}}},{"id":"si302894","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si302907","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2100","class":"TODO::Senthil","instance":"Text_Caption_2100","title":"REVIEW ","roles":{"textData":{}}},{"id":"Text_Caption_2101","class":"TODO::Senthil","instance":"Text_Caption_2101","title":"Understanding Basis ","roles":{"textData":{}}},{"id":"Line_49","class":"TODO::Senthil","instance":"Line_49","roles":{}},{"id":"Image_1481","class":"TODO::Senthil","instance":"Image_1481","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Button_2507","class":"TODO::Senthil","instance":"Button_2507","roles":{"click":{"subtype":"button"}}},{"id":"si302985","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si302999","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide303015","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2505","si302843","si302856","Button_2506","si302894","si302907","Text_Caption_2100","Text_Caption_2101","Image_1481","Button_2507","si302985","si302999"],"roles":{"slide":{"durationInFrames":600},"navigation":{"navid":"Slide303015"}}},{"id":"Button_2508","class":"TODO::Senthil","instance":"Button_2508","roles":{"click":{"subtype":"button"}}},{"id":"si303070","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si303083","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2509","class":"TODO::Senthil","instance":"Button_2509","roles":{"click":{"subtype":"button"}}},{"id":"si303121","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si303134","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2102","class":"TODO::Senthil","instance":"Text_Caption_2102","title":"REVIEW - UNDERSTANDING BASIS ","roles":{"textData":{}}},{"id":"Text_Caption_2103","class":"TODO::Senthil","instance":"Text_Caption_2103","title":"The term basis is also used to describe the difference in price between the cash commodity and the price of the nearest futures delivery month.   The basis is always the relationship of the price of the cash commodity to the price of futures, but not the other way around. In other words, if the basis is \"$0.10 under,\" this means that cash is $0.10 under futures. If the basis is \"$0.05 over,\" this means that cash is $0.05 over futures.   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However, Eddie is concerned that the price may decrease before be sells.   He decides to purchase at $3.80 per bushel at-the-money put option for $0.15 per bushel. Later, when Eddie is ready to sell the corn, the cash and futures prices have decreased to $3.40 per bushel and $3.50 per bushel, respectively (no change in basis).   The futures price has decreased such that the put option is now in the money. Eddie sells the corn for $3.40 per bushel and sells his put option for $0.35 per bushel, a $0.20 per bushel gain in value. In this case, Eddie has improved his selling price from $3.40 per bushel to $3.59 per bushel ($3.40 per bushel less $0.01 per bushel commission plus $0.20 per bushel gain in option value). ","roles":{"textData":{}}},{"id":"Text_Caption_2008","class":"TODO::Senthil","instance":"Text_Caption_2008","title":"HEDGING EXAMPLES ","roles":{"textData":{}}},{"id":"Image_1368","class":"TODO::Senthil","instance":"Image_1368","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Image_1369","class":"TODO::Senthil","instance":"Image_1369","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Image_1372","class":"TODO::Senthil","instance":"Image_1372","roles":{"click":{"subtype":"button"},"question":{"interactionId":"284388","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Text_Caption_2012","class":"TODO::Senthil","instance":"Text_Caption_2012","title":"Click Next to see the table on the next slide. 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The cash and futures prices increase to $3.90 per bushel and $4.00 per bushel, respectively (no change in basis).   The futures price has increased such that the put option is now out of the money. Eddie sells the corn for $3.90 per bushel and sells his put option for $0.05 per bushel, a $0.10 per bushel loss.  In this case, Eddie has decreased his selling price from $3.90 per bushel to $3.79 per bushel ($3.90 per bushel less $0.01 per bushel commission minus $0.10 per bushel loss in option value). However, he had the potential for unlimited gains with limited losses. 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If the basis is \"$0.10 under,\" this means that cash is $0.10 under futures. If the basis is \"$0.05 over,\" this means that cash is $0.05 over futures. 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Assume the same initial conditions as in the previous examples, except that the local cash price increases to $127 per hundredweight and the futures price increases to $126 per hundredweight over the next few months.   When you decide the cattle need to go to market, you sell in the cash market for $127 per hundredweight and buy back your futures position for $126 per hundredweight. So, the revenue from selling cattle is $127 per hundredweight less $1 per hundredweight lost from the futures position less any commission. Instead of selling for $127 per hundredweight, you sell for $125.85 per hundredweight.  A strengthening basis occurs when the difference between the cash market price of a given commodity and the futures price of the same commodity narrows. This happens when the cash market price increases relative to the futures price. The basis then, becomes less negative or more positive. 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This happens when the cash market price increases relative to the futures price. The basis then, becomes less negative or more positive. 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A strengthening basis occurs when the difference between the cash market price of a given commodity and the futures price of the same commodity narrows. This happens when the cash market price increases relative to the futures price. The basis then, becomes less negative or more positive.  Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si300659","class":"TODO::Senthil","instance":"Text_Caption_523","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide300673","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2084","Image_1462","si300510","si300525","si300536","si300571","si300583","si300595"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide300673"},"question":{"interactionId":"300459","quizId":733,"title":"True/False","text":"A strengthening basis occurs when the difference between the cash market price of a given commodity and the futures price of the same commodity narrows. This happens when the cash market price increases relative to the futures price. The basis then, becomes less negative or more positive.\r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"]}}},{"id":"Button_2384","class":"TODO::Senthil","instance":"Button_2384","roles":{"click":{"subtype":"button"}}},{"id":"si285637","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si285650","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2385","class":"TODO::Senthil","instance":"Button_2385","roles":{"click":{"subtype":"button"}}},{"id":"si285688","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si285701","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2025","class":"TODO::Senthil","instance":"Text_Caption_2025","title":"Basis Weakens In this scenario, basis is said to weaken.   Again, assuming the same initial conditions as in the previous examples, suppose that the local cash price increases to $127 per hundredweight and the futures price increases to $129 per hundredweight over the next few months.  The revenue from selling cattle is $127 per hundredweight less $4 per hundredweight lost from the futures position less any commission. Instead of selling for $127 per hundredweight, you sell for $122.85 per hundredweight.  A weakening basis occurs when the difference between the cash market price of a given commodity and the futures price of the same commodity widens. This happens when the cash market price increases more slowly relative to the futures price or the cash price decreases faster relative to the futures price. 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This happens when the cash market price increases more slowly relative to the futures price or the cash price decreases faster relative to the futures price. 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A weakening basis occurs when the difference between the cash market price of a given commodity and the futures price of the same commodity widens. This happens when the cash market price increases more slowly relative to the futures price or the cash price decreases faster relative to the futures price.  Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si300888","class":"TODO::Senthil","instance":"Text_Caption_524","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide300902","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2085","Image_1463","si300739","si300754","si300765","si300800","si300812","si300824"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide300902"},"question":{"interactionId":"300692","quizId":733,"title":"True/False","text":"A weakening basis occurs when the difference between the cash market price of a given commodity and the futures price of the same commodity widens. This happens when the cash market price increases more slowly relative to the futures price or the cash price decreases faster relative to the futures price.\r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"]}}},{"id":"Button_2390","class":"TODO::Senthil","instance":"Button_2390","roles":{"click":{"subtype":"button"}}},{"id":"si286136","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si286149","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2391","class":"TODO::Senthil","instance":"Button_2391","roles":{"click":{"subtype":"button"}}},{"id":"si286187","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si286200","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2030","class":"TODO::Senthil","instance":"Text_Caption_2030","title":"Determining the Month to Hedge On March 1, a hedger who's long the basis (long the cash commodity) has the option of selling futures in September at $2.10 or in December at $2.20.   He anticipates that the price of September futures will likely advance more than the price of December futures if there's an advance in the price of the commodity. He hedges with December futures, rather than September futures. On May 1, -when he sells the cash commodity at $2.05, September futures are at $2.20, while December futures are at $2.25.   December futures advanced less than September futures and the hedger anticipated the price movement correctly. When he lifted the hedge on May 1, he had a profit of $0.05 on the actuals. His loss on December futures was also $0.05 and his net result was flat.   If he had hedged in September, his loss would have been $0.10 on the futures versus a profit of $0.05 on the actuals, resulting in a net loss of $0.05. 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The choice of the month in which to hedge is based on the determination of the probable price changes that may occur and then selecting the month in which price changes will be most favorable. If the hedger is long the basis (long cash and short futures), he will try to hedge at a time when the price of cash is relatively low and the price of futures is relatively high. In this case, he's anticipating that the price of cash will advance relatively more than futures, or that the price of futures will decline relatively more than cash. If he's short the basis (short cash and long futures), he will seek the opposite relationship between the price of cash and the price of futures.  The hedger will attempt to buy the cash commodity at the lowest possible price, or sell the cash commodity at the highest possible price, when he establishes his cash position, thereby affording him the best basis possible. Likewise, he will attempt to close out his position at the best possible price.  ","roles":{"textData":{}}},{"id":"Text_Caption_2041","class":"TODO::Senthil","instance":"Text_Caption_2041","title":"HEDGING EXAMPLES - DETERMINING THE MONTH TO HEDGE ","roles":{"textData":{}}},{"id":"Image_1414","class":"TODO::Senthil","instance":"Image_1414","roles":{"click":{"subtype":"button"},"question":{"interactionId":"287493","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Image_1415","class":"TODO::Senthil","instance":"Image_1415","roles":{"click":{"subtype":"button"},"question":{"interactionId":"287518","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Image_1416","class":"TODO::Senthil","instance":"Image_1416","roles":{"click":{"subtype":"button"},"question":{"interactionId":"287531","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2473","class":"TODO::Senthil","instance":"Button_2473","roles":{"click":{"subtype":"button"}}},{"id":"si295504","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si295533","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide287175","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2399","si286969","si286982","Button_2400","si287020","si287033","Text_Caption_2040","Text_Caption_2041","Image_1414","Image_1415","Image_1416","Button_2473","si295504","si295533"],"roles":{"slide":{"durationInFrames":2820},"navigation":{"navid":"Slide287175"}}},{"id":"Button_2405","class":"TODO::Senthil","instance":"Button_2405","roles":{"click":{"subtype":"button"}}},{"id":"si287593","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si287606","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2406","class":"TODO::Senthil","instance":"Button_2406","roles":{"click":{"subtype":"button"}}},{"id":"si287644","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si287657","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2046","class":"TODO::Senthil","instance":"Text_Caption_2046","title":"Currency Hedging Currency hedging is the use of financial instruments, called derivative contracts, to manage financial risk.  It involves the designation of one or more financial instruments as a buffer for potential loss. In hedging, the change in the fair value or cash flows of the derivative will offset, in whole or in part, the change in fair value or cash flows of a hedged item. ","roles":{"textData":{}}},{"id":"Text_Caption_2047","class":"TODO::Senthil","instance":"Text_Caption_2047","title":"HEDGING EXAMPLES - CURRENCY HEDGING ","roles":{"textData":{}}},{"id":"Image_1417","class":"TODO::Senthil","instance":"Image_1417","roles":{"click":{"subtype":"button"},"question":{"interactionId":"287735","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Image_1419","class":"TODO::Senthil","instance":"Image_1419","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Image_1420","class":"TODO::Senthil","instance":"Image_1420","roles":{"click":{"subtype":"button"},"question":{"interactionId":"287792","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2474","class":"TODO::Senthil","instance":"Button_2474","roles":{"click":{"subtype":"button"}}},{"id":"si295595","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si295624","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide287787","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2405","si287593","si287606","Button_2406","si287644","si287657","Text_Caption_2046","Text_Caption_2047","Image_1417","Image_1419","Image_1420","Button_2474","si295595","si295624"],"roles":{"slide":{"durationInFrames":1047},"navigation":{"navid":"Slide287787"}}},{"id":"Button_2517","class":"TODO::Senthil","instance":"Button_2517","roles":{"click":{"subtype":"button"}}},{"id":"si303837","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si303850","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2518","class":"TODO::Senthil","instance":"Button_2518","roles":{"click":{"subtype":"button"}}},{"id":"si303888","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si303901","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2112","class":"TODO::Senthil","instance":"Text_Caption_2112","title":"Imagine this . . . you are the president of Star Enterprises in the United States. Star Enterprises has a loan of €50,000 with a London bank. The loan is denominated in the euro. Therefore, Star Enterprises is subject to the risk of fluctuating exchange rates between two different currencies.  As the president of Star Enterprises, you know that when the dollar devalues against the euro, the company will have to pay more in dollars to settle the obligation. On the contrary, should the euro devalue against the dollar, the company will need a lesser amount in terms of US dollars. To manage this risk of paying more upon maturity date, you entered into a foreign currency forward contract with a third-party speculator.  On the contract date, the forward contract was set at the current exchange rate which was $1 to €0.93. This means that to settle the loan of €50,000, Star Enterprise's payment is pegged at €0.93, or $53,764, regardless of the dollar to euro exchange rate on maturity date. ","roles":{"textData":{}}},{"id":"Text_Caption_2113","class":"TODO::Senthil","instance":"Text_Caption_2113","title":"HEDGING EXAMPLES - CURRENCY HEDGING ","roles":{"textData":{}}},{"id":"Button_2519","class":"TODO::Senthil","instance":"Button_2519","roles":{"click":{"subtype":"button"}}},{"id":"si303998","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304012","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Image_1492","class":"TODO::Senthil","instance":"Image_1492","roles":{"click":{"subtype":"button"},"question":{"interactionId":"304242","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Slide304028","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2517","si303837","si303850","Button_2518","si303888","si303901","Text_Caption_2112","Text_Caption_2113","Button_2519","si303998","si304012","Image_1492"],"roles":{"slide":{"durationInFrames":2700},"navigation":{"navid":"Slide304028"}}},{"id":"Button_2523","class":"TODO::Senthil","instance":"Button_2523","roles":{"click":{"subtype":"button"}}},{"id":"si304303","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304316","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2524","class":"TODO::Senthil","instance":"Button_2524","roles":{"click":{"subtype":"button"}}},{"id":"si304354","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304367","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2116","class":"TODO::Senthil","instance":"Text_Caption_2116","title":"If on the maturity date, the dollar devalues against the euro and the exchange rate is at $1 to €0.90, Star Enterprises will need more US dollars ($55,556) to settle the obligation. However, since Star Enterprises entered into a foreign currency forward contract, the eventual net cash outflow by Star Enterprises will only be $53,764, the amount originally pegged.  Star Enterprises will have to pay London bank the total amount of $55,556, but the difference of $1,792 will be received by Star Enterprises from the third-party speculator. Conversely, if the euro devalues against the dollar and the exchange rate will be $1 to €1.02, the eventual net cash outflow of Star Enterprises will still be $53,764. Star Enterprises will have to pay London bank $49,020 and MM will have to pay the third-party speculator the amount of $4,744. ","roles":{"textData":{}}},{"id":"Text_Caption_2117","class":"TODO::Senthil","instance":"Text_Caption_2117","title":"HEDGING EXAMPLES - CURRENCY HEDGING ","roles":{"textData":{}}},{"id":"Button_2525","class":"TODO::Senthil","instance":"Button_2525","roles":{"click":{"subtype":"button"}}},{"id":"si304428","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304442","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Image_1493","class":"TODO::Senthil","instance":"Image_1493","roles":{"click":{"subtype":"button"},"question":{"interactionId":"304447","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Slide304470","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2523","si304303","si304316","Button_2524","si304354","si304367","Text_Caption_2116","Text_Caption_2117","Button_2525","si304428","si304442","Image_1493"],"roles":{"slide":{"durationInFrames":2904},"navigation":{"navid":"Slide304470"}}},{"id":"Button_2402","class":"TODO::Senthil","instance":"Button_2402","roles":{"click":{"subtype":"button"}}},{"id":"si287229","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si287242","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2403","class":"TODO::Senthil","instance":"Button_2403","roles":{"click":{"subtype":"button"}}},{"id":"si287280","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si287293","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2043","class":"TODO::Senthil","instance":"Text_Caption_2043","title":"Treasury Bond Hedging Traditionally considered lower-risk investments than stocks, bond prices may fall dramatically depending on how much and how quickly interest rates rise. As a result, investors might consider selling short the U.S. bond market and profit from an anticipated bear market. A short position in bonds also has the potential to generate high returns during inflationary periods.  Now let's focus on hedging to protect against changes in interest rates. In order to understand how these hedges operate, it's first necessary to understand the relationship between changes in interest rates and the prices for bonds that are outstanding in the market.   The first point to note is that interest rates and bond prices change in an inverse relationship. If interest rates increase, prices for bonds that are already outstanding will decrease; however, if interest rates decrease, prices for bonds that are already outstanding will increase. To understand this relationship, let's examine a bond that's currently outstanding. ","roles":{"textData":{}}},{"id":"Text_Caption_2044","class":"TODO::Senthil","instance":"Text_Caption_2044","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Image_1409","class":"TODO::Senthil","instance":"Image_1409","roles":{"click":{"subtype":"button"},"question":{"interactionId":"287371","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Image_1425","class":"TODO::Senthil","instance":"Image_1425","roles":{"click":{"subtype":"button"},"question":{"interactionId":"288074","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2476","class":"TODO::Senthil","instance":"Button_2476","roles":{"click":{"subtype":"button"}}},{"id":"si295777","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si295806","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide287435","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2402","si287229","si287242","Button_2403","si287280","si287293","Text_Caption_2043","Text_Caption_2044","Image_1409","Image_1425","Button_2476","si295777","si295806"],"roles":{"slide":{"durationInFrames":3513},"navigation":{"navid":"Slide287435"}}},{"id":"Text_Caption_2086","class":"TODO::Senthil","instance":"Text_Caption_2086","title":"KNOWLEDGE CHECK ","roles":{"textData":{}}},{"id":"Image_1464","class":"TODO::Senthil","instance":"Image_1464","roles":{"click":{"subtype":"button","question":"Slide301131q10"},"question":{"interactionId":"300949","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"si300968","class":"TODO::Senthil","instance":"Text_Caption_636","title":"Interest rates and bond prices change in an inverse relationship. If interest rates increase, prices for bonds that are already outstanding will decrease; however, if interest rates decrease, prices for bonds that are already outstanding will increase. To understand this relationship, let's examine a bond that's currently outstanding. ","roles":{"textData":{}}},{"id":"si300979","class":"TODO::Senthil","instance":"Text_Caption_637","title":"A) ","roles":{"textData":{}}},{"id":"si300983","class":"TODO::Senthil","instance":"Text_Caption_638","title":"True ","roles":{"textData":{}}},{"id":"si300979_a","class":"TODO::Senthil","instance":"68_109","roles":{"answer":{"title":"True","index":"Not implemented","score":{"weight":0}}}},{"id":"si300990","class":"TODO::Senthil","instance":"Text_Caption_639","title":"B) ","roles":{"textData":{}}},{"id":"si300994","class":"TODO::Senthil","instance":"Text_Caption_640","title":"False ","roles":{"textData":{}}},{"id":"si300990_a","class":"TODO::Senthil","instance":"70_110","roles":{"answer":{"title":"False","index":"Not implemented","score":{"weight":0}}}},{"id":"si301029","class":"TODO::Senthil","instance":"Button_187","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide301131q10","for":"Slide301131q10"},"textData":{}}},{"id":"si301041","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide301131q10","for":"Slide301131q10"},"textData":{}}},{"id":"si301053","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide301131q10","for":"Slide301131q10"},"textData":{}}},{"id":"si301085","class":"TODO::Senthil","instance":"Text_Caption_641","title":"Incorrect - The correct answer is True. Interest rates and bond prices change in an inverse relationship. If interest rates increase, prices for bonds that are already outstanding will decrease; however, if interest rates decrease, prices for bonds that are already outstanding will increase. To understand this relationship, let's examine a bond that's currently outstanding.  Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si301117","class":"TODO::Senthil","instance":"Text_Caption_525","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide301131","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2086","Image_1464","si300968","si300983","si300994","si301029","si301041","si301053"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide301131"},"question":{"interactionId":"300917","quizId":733,"title":"True/False","text":"Interest rates and bond prices change in an inverse relationship. If interest rates increase, prices for bonds that are already outstanding will decrease; however, if interest rates decrease, prices for bonds that are already outstanding will increase. To understand this relationship, let's examine a bond that's currently outstanding.\r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"]}}},{"id":"Button_2411","class":"TODO::Senthil","instance":"Button_2411","roles":{"click":{"subtype":"button"}}},{"id":"si288134","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si288147","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2412","class":"TODO::Senthil","instance":"Button_2412","roles":{"click":{"subtype":"button"}}},{"id":"si288185","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si288198","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2052","class":"TODO::Senthil","instance":"Text_Caption_2052","title":"A bond that's currently outstanding is paying 8% interest annually. Interest rates for comparable bonds being issued today are currently 9%. An individual who's interested in acquiring a comparable bond would be willing to buy either bond provided that his net yield on the bond is the same. The individual could buy a new bond by paying the principal amount of $1,000 and would receive interest payments of $90 annually (9% of $1,000). However, the individual would certainly not buy the 89% bond that's already outstanding because his return would only be $80 annually (8% of $1,000).  If a holder of the 8% bond wants to dispose of it, he could only do so by selling the bond at a lower principal amount, which would make the net yield to the new buyer equal to 9%.   One example is the 8% bond has one year remaining until maturity, its price will drop to approximately $990. If the bond has 10 years remaining to maturity, its price will drop to approximately $935. The amount that the price must fall to offset an increase in interest rates is based on a complicated formula that is not required for test purposes.  ","roles":{"textData":{}}},{"id":"Text_Caption_2053","class":"TODO::Senthil","instance":"Text_Caption_2053","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Button_2477","class":"TODO::Senthil","instance":"Button_2477","roles":{"click":{"subtype":"button"}}},{"id":"si295868","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si295897","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Image_1495","class":"TODO::Senthil","instance":"Image_1495","roles":{"click":{"subtype":"button"},"question":{"interactionId":"304544","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Slide288310","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2411","si288134","si288147","Button_2412","si288185","si288198","Text_Caption_2052","Text_Caption_2053","Button_2477","si295868","si295897","Image_1495"],"roles":{"slide":{"durationInFrames":3291},"navigation":{"navid":"Slide288310"}}},{"id":"Button_2526","class":"TODO::Senthil","instance":"Button_2526","roles":{"click":{"subtype":"button"}}},{"id":"si304605","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304618","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2527","class":"TODO::Senthil","instance":"Button_2527","roles":{"click":{"subtype":"button"}}},{"id":"si304656","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304669","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2121","class":"TODO::Senthil","instance":"Text_Caption_2121","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Image_1496","class":"TODO::Senthil","instance":"Image_1496","roles":{"click":{"subtype":"button"},"question":{"interactionId":"304699","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Image_1497","class":"TODO::Senthil","instance":"Image_1497","roles":{"click":{"subtype":"button"},"question":{"interactionId":"304710","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Text_Caption_2122","class":"TODO::Senthil","instance":"Text_Caption_2122","title":"Bonds are quoted at a percentage of the par value. Therefore, if a bond price drops to $990, it will be quoted at 99, which is 99% of the par value of $1,000. If the price drops to $935, it will be quoted at 93.5, which means 93.5% of the par value of $1,000. ","roles":{"textData":{}}},{"id":"Image_1498","class":"TODO::Senthil","instance":"Image_1498","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Button_2528","class":"TODO::Senthil","instance":"Button_2528","roles":{"click":{"subtype":"button"}}},{"id":"si304771","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304785","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide304813","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2526","si304605","si304618","Button_2527","si304656","si304669","Text_Caption_2121","Image_1496","Image_1497","Text_Caption_2122","Image_1498","Button_2528","si304771","si304785"],"roles":{"slide":{"durationInFrames":1026},"navigation":{"navid":"Slide304813"}}},{"id":"Text_Caption_2087","class":"TODO::Senthil","instance":"Text_Caption_2087","title":"KNOWLEDGE CHECK ","roles":{"textData":{}}},{"id":"Image_1465","class":"TODO::Senthil","instance":"Image_1465","roles":{"click":{"subtype":"button","question":"Slide301360q11"},"question":{"interactionId":"301178","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"si301197","class":"TODO::Senthil","instance":"Text_Caption_642","title":"Bonds are quoted at a percentage of the par value. Therefore, if a bond price drops to $990, it will be quoted at 99, which is 99% of the par value of $1,000. If the price drops to $935, it will be quoted at 93.5, which means 93.5% of the par value of $1,000. ","roles":{"textData":{}}},{"id":"si301208","class":"TODO::Senthil","instance":"Text_Caption_643","title":"A) ","roles":{"textData":{}}},{"id":"si301212","class":"TODO::Senthil","instance":"Text_Caption_644","title":"True ","roles":{"textData":{}}},{"id":"si301208_a","class":"TODO::Senthil","instance":"68_111","roles":{"answer":{"title":"True","index":"Not implemented","score":{"weight":0}}}},{"id":"si301219","class":"TODO::Senthil","instance":"Text_Caption_645","title":"B) ","roles":{"textData":{}}},{"id":"si301223","class":"TODO::Senthil","instance":"Text_Caption_646","title":"False ","roles":{"textData":{}}},{"id":"si301219_a","class":"TODO::Senthil","instance":"70_112","roles":{"answer":{"title":"False","index":"Not implemented","score":{"weight":0}}}},{"id":"si301258","class":"TODO::Senthil","instance":"Button_188","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide301360q11","for":"Slide301360q11"},"textData":{}}},{"id":"si301270","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide301360q11","for":"Slide301360q11"},"textData":{}}},{"id":"si301282","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide301360q11","for":"Slide301360q11"},"textData":{}}},{"id":"si301314","class":"TODO::Senthil","instance":"Text_Caption_647","title":"Incorrect - The correct answer is True. Bonds are quoted at a percentage of the par value. Therefore, if a bond price drops to $990, it will be quoted at 99, which is 99% of the par value of $1,000. If the price drops to $935, it will be quoted at 93.5, which means 93.5% of the par value of $1,000. Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si301346","class":"TODO::Senthil","instance":"Text_Caption_526","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"Slide301360","class":"Question Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_2087","Image_1465","si301197","si301212","si301223","si301258","si301270","si301282"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide301360"},"question":{"interactionId":"301150","quizId":733,"title":"True/False","text":"Bonds are quoted at a percentage of the par value. Therefore, if a bond price drops to $990, it will be quoted at 99, which is 99% of the par value of $1,000. If the price drops to $935, it will be quoted at 93.5, which means 93.5% of the par value of $1,000.\r","ikc":true,"type":"knowledgeCheck","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"]}}},{"id":"Button_2414","class":"TODO::Senthil","instance":"Button_2414","roles":{"click":{"subtype":"button"}}},{"id":"si288400","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si288413","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2415","class":"TODO::Senthil","instance":"Button_2415","roles":{"click":{"subtype":"button"}}},{"id":"si288451","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si288464","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2055","class":"TODO::Senthil","instance":"Text_Caption_2055","title":"Long Hedge Let’s assume that the current interest rate on high-grade corporate bonds is 8.7%, which is a satisfactory yield for the investor. He will eventually be buying bonds with an 8% interest rate; therefore, the bonds are currently selling in the market at 95 00/32nds. He decides to secure this yield by buying U.S. Government bond futures. The current price of the futures is 92-24/32nds. The initial position will appear as follows: ","roles":{"textData":{}}},{"id":"Text_Caption_2056","class":"TODO::Senthil","instance":"Text_Caption_2056","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Image_1432","class":"TODO::Senthil","instance":"Image_1432","roles":{"click":{"subtype":"button"},"question":{"interactionId":"288600","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2478","class":"TODO::Senthil","instance":"Button_2478","roles":{"click":{"subtype":"button"}}},{"id":"si295959","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si295988","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide288594","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2414","si288400","si288413","Button_2415","si288451","si288464","Text_Caption_2055","Text_Caption_2056","Image_1432","Button_2478","si295959","si295988"],"roles":{"slide":{"durationInFrames":1605},"navigation":{"navid":"Slide288594"}}},{"id":"Button_2541","class":"TODO::Senthil","instance":"Button_2541","roles":{"click":{"subtype":"button"}}},{"id":"si306027","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si306040","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2542","class":"TODO::Senthil","instance":"Button_2542","roles":{"click":{"subtype":"button"}}},{"id":"si306078","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si306091","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2134","class":"TODO::Senthil","instance":"Text_Caption_2134","title":"When the investor finally realizes the $500,000 from the sale of his business, interest rates have decreased. Therefore, he will need to pay a higher price to purchase the same 8% bonds, which are currently selling at 98-16/32nds. Remember, the price of bonds that are already outstanding increases if interest rates decrease. This means that the bonds he could have purchased at 95-00/32nds (95% of the face value) are now selling at 98-16/32nds (98.5% of face value).  ","roles":{"textData":{}}},{"id":"Text_Caption_2135","class":"TODO::Senthil","instance":"Text_Caption_2135","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Button_2543","class":"TODO::Senthil","instance":"Button_2543","roles":{"click":{"subtype":"button"}}},{"id":"si306151","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si306164","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Image_1508","class":"TODO::Senthil","instance":"Image_1508","roles":{"click":{"subtype":"button"},"question":{"interactionId":"306169","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Text_Caption_2143","class":"TODO::Senthil","instance":"Text_Caption_2143","title":"Therefore, it would cost him 3 1/2% more to purchase $500,000 of bonds, for a total of  $17,500 ($500,000 x .035). As a result of the change in interest rates, the price of the Treasury bond futures that he purchased have also gone up and are now selling at 96-8/32nds. ","roles":{"textData":{}}},{"id":"Slide306192","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2541","si306027","si306040","Button_2542","si306078","si306091","Text_Caption_2134","Text_Caption_2135","Button_2543","si306151","si306164","Image_1508","Text_Caption_2143"],"roles":{"slide":{"durationInFrames":2370},"navigation":{"navid":"Slide306192"}}},{"id":"Button_2529","class":"TODO::Senthil","instance":"Button_2529","roles":{"click":{"subtype":"button"}}},{"id":"si304879","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304892","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2530","class":"TODO::Senthil","instance":"Button_2530","roles":{"click":{"subtype":"button"}}},{"id":"si304930","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si304943","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2124","class":"TODO::Senthil","instance":"Text_Caption_2124","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Text_Caption_2125","class":"TODO::Senthil","instance":"Text_Caption_2125","title":"NET RESULTS ","roles":{"textData":{}}},{"id":"Image_1501","class":"TODO::Senthil","instance":"Image_1501","roles":{"click":{"subtype":"button"},"question":{"interactionId":"304979","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Text_Caption_2126","class":"TODO::Senthil","instance":"Text_Caption_2126","title":"As a result of hedging, the increased cost to the investor to purchase the bonds is exactly offset by the profit on the futures. ","roles":{"textData":{}}},{"id":"Button_2531","class":"TODO::Senthil","instance":"Button_2531","roles":{"click":{"subtype":"button"}}},{"id":"si305026","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si305040","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Image_1502","class":"TODO::Senthil","instance":"Image_1502","roles":{"click":{"subtype":"button"},"textData":{}}},{"id":"Slide305068","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2529","si304879","si304892","Button_2530","si304930","si304943","Text_Caption_2124","Text_Caption_2125","Image_1501","Text_Caption_2126","Button_2531","si305026","si305040","Image_1502"],"roles":{"slide":{"durationInFrames":1821},"navigation":{"navid":"Slide305068"}}},{"id":"Button_2420","class":"TODO::Senthil","instance":"Button_2420","roles":{"click":{"subtype":"button"}}},{"id":"si288960","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si288973","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2421","class":"TODO::Senthil","instance":"Button_2421","roles":{"click":{"subtype":"button"}}},{"id":"si289011","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289024","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2062","class":"TODO::Senthil","instance":"Text_Caption_2062","title":"Short Hedge A corporation intends to issue $10 million of bonds in six months. The corporation is concerned that interest rates will rise and that it will be required to pay a higher rate of interest on the bonds that it eventually issues. In order to hedge against rising interest rates, the corporation will sell Treasury bond futures. If interest rates go up, the price of the futures will fall. The increased cost to issue the bonds will be offset by a profit on the futures. ","roles":{"textData":{}}},{"id":"Text_Caption_2063","class":"TODO::Senthil","instance":"Text_Caption_2063","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Image_1436","class":"TODO::Senthil","instance":"Image_1436","roles":{"click":{"subtype":"button"},"question":{"interactionId":"289132","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2480","class":"TODO::Senthil","instance":"Button_2480","roles":{"click":{"subtype":"button"}}},{"id":"si296141","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si296170","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2142","class":"TODO::Senthil","instance":"Text_Caption_2142","title":"At the time that the corporation makes plans to issue bonds, comparable bonds are selling at a price of 96-16/32nds and Treasury bond futures at trading at 98-22/32nds. In order to hedge against rising interest rates, the corporation will sell 100 Treasury bond contracts. The initial position appears as follows: ","roles":{"textData":{}}},{"id":"Slide289126","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2420","si288960","si288973","Button_2421","si289011","si289024","Text_Caption_2062","Text_Caption_2063","Image_1436","Button_2480","si296141","si296170","Text_Caption_2142"],"roles":{"slide":{"durationInFrames":2388},"navigation":{"navid":"Slide289126"}}},{"id":"Button_2423","class":"TODO::Senthil","instance":"Button_2423","roles":{"click":{"subtype":"button"}}},{"id":"si289203","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289216","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2424","class":"TODO::Senthil","instance":"Button_2424","roles":{"click":{"subtype":"button"}}},{"id":"si289254","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289267","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2064","class":"TODO::Senthil","instance":"Text_Caption_2064","title":"When the corporation issues the bonds, interest rates have risen and the price of fixed income securities that are already outstanding has fallen. Bonds that are equivalent to the grade that the corporation will issue are selling at 92-2/32nds and the price of the Treasury bond futures has dropped to 93-10/32nds.  The results of the hedge are as follows:  ","roles":{"textData":{}}},{"id":"Text_Caption_2065","class":"TODO::Senthil","instance":"Text_Caption_2065","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Image_1439","class":"TODO::Senthil","instance":"Image_1439","roles":{"click":{"subtype":"button"},"question":{"interactionId":"289383","quizId":-1,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2481","class":"TODO::Senthil","instance":"Button_2481","roles":{"click":{"subtype":"button"}}},{"id":"si296232","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si296261","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide289369","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Button_2423","si289203","si289216","Button_2424","si289254","si289267","Text_Caption_2064","Text_Caption_2065","Image_1439","Button_2481","si296232","si296261"],"roles":{"slide":{"durationInFrames":2583},"navigation":{"navid":"Slide289369"}}},{"id":"Image_1441","class":"TODO::Senthil","instance":"Image_1441","roles":{"click":{"subtype":"button"},"question":{"interactionId":"289620","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Image_1442","class":"TODO::Senthil","instance":"Image_1442","roles":{"click":{"subtype":"button"},"question":{"interactionId":"289631","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2426","class":"TODO::Senthil","instance":"Button_2426","roles":{"click":{"subtype":"button"}}},{"id":"si289449","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289462","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2427","class":"TODO::Senthil","instance":"Button_2427","roles":{"click":{"subtype":"button"}}},{"id":"si289500","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289513","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2066","class":"TODO::Senthil","instance":"Text_Caption_2066","title":"In the example on the previous slide, note that there was a favorable change in the corporation's basis. The basis went from 2-6/32nds under to 1-8/32nds under. This change in the basis resulted in a net profit on the hedge of 30/32nds (5-12/32-4-14/32).  If the futures position is examined, it's evident that there was a profit of 5- 12/32nds. Keep in mind, each full point represents 32/32nds. Since there are 5 points, this equals 160 (5 x 32). By adding the additional 12/32nds to the 160, the result is a total profit of 172/32nds. In a Treasury bond futures contract, each 32nd of one point is equal to $31.25. Therefore, with 100 contracts involved in the hedge, the total profit is $537,500 (172 x S31.25 x 100 contracts).  This profit helps to defray the added interest costs that the corporation will sustain over the life of the bond as a result of increased interest rates. The hedge itself not only defrayed the added cost due to rising interest rates, but also yielded a net profit. Note that, due to a favorable basis change, the hedge contributed a profit of 30/32nds. Since each 32nd is worth $31.25, the total profit on the hedge was $93,750 (30 x $31.25 x 100 contracts). ","roles":{"textData":{}}},{"id":"Text_Caption_2067","class":"TODO::Senthil","instance":"Text_Caption_2067","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Button_2482","class":"TODO::Senthil","instance":"Button_2482","roles":{"click":{"subtype":"button"}}},{"id":"si296323","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si296352","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide289615","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Image_1441","Image_1442","Button_2426","si289449","si289462","Button_2427","si289500","si289513","Text_Caption_2066","Text_Caption_2067","Button_2482","si296323","si296352"],"roles":{"slide":{"durationInFrames":3933},"navigation":{"navid":"Slide289615"}}},{"id":"Image_1443","class":"TODO::Senthil","instance":"Image_1443","roles":{"click":{"subtype":"button"},"question":{"interactionId":"289647","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Image_1444","class":"TODO::Senthil","instance":"Image_1444","roles":{"click":{"subtype":"button"},"question":{"interactionId":"289658","quizId":733,"text":"Image ","type":"graded","interactionType":"choice","score":{"weight":1,"penalty":0}},"textData":{}}},{"id":"Button_2429","class":"TODO::Senthil","instance":"Button_2429","roles":{"click":{"subtype":"button"}}},{"id":"si289715","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289728","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2430","class":"TODO::Senthil","instance":"Button_2430","roles":{"click":{"subtype":"button"}}},{"id":"si289766","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289779","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2068","class":"TODO::Senthil","instance":"Text_Caption_2068","title":"The corporation issued the bonds at the current rate of 92-2/32nds.   This was not the net issue price because the futures hedge contributed a profit of 5- 12/32nds. In order to determine the final issue price of the bonds, taking into consideration the profit on the futures, the profit on the futures is added to the issue price.   The effective issue price is therefore 97- 14/32nds (92-2/32nds issue price + 5-12/32nds profit on futures).   ","roles":{"textData":{}}},{"id":"Text_Caption_2069","class":"TODO::Senthil","instance":"Text_Caption_2069","title":"HEDGING EXAMPLES - TREASURY BOND HEDGING ","roles":{"textData":{}}},{"id":"Button_2483","class":"TODO::Senthil","instance":"Button_2483","roles":{"click":{"subtype":"button"}}},{"id":"si296414","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si296443","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Slide289868","class":"Normal Slide","instance":"","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Image_1443","Image_1444","Button_2429","si289715","si289728","Button_2430","si289766","si289779","Text_Caption_2068","Text_Caption_2069","Button_2483","si296414","si296443"],"roles":{"slide":{"durationInFrames":1338},"navigation":{"navid":"Slide289868"}}},{"id":"Button_2432","class":"TODO::Senthil","instance":"Button_2432","roles":{"click":{"subtype":"button"}}},{"id":"si289922","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289935","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Button_2433","class":"TODO::Senthil","instance":"Button_2433","roles":{"click":{"subtype":"button"}}},{"id":"si289973","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"si289986","class":"TODO::Senthil","roles":{"click":{"subtype":"button"}}},{"id":"Text_Caption_2070","class":"TODO::Senthil","instance":"Text_Caption_2070","title":"Going short the bond market means that an investor or trader suspects that bond prices will fall.  Derivatives contracts on bonds, such as futures and options, provide one way to short the bond market, or to hedge an existing long position from a downturn.  Inverse bond ETFs and mutual funds are another way to diversify a short bond position and benefit from professional portfolio management. 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(Select all that apply) ","roles":{"textData":{}}},{"id":"si199473","class":"TODO::Senthil","title":"A) ","roles":{"textData":{}}},{"id":"si199477","class":"TODO::Senthil","title":"If a hedger is short cash he will buy futures. ","roles":{"textData":{}}},{"id":"si199477","class":"TODO::Senthil","roles":{"click":{"subtype":"button","question":"Slide199421q12"},"answer":{"title":"dummy title","index":-1,"score":{}}}},{"id":"si199473_a","class":"TODO::Senthil","roles":{"answer":{"title":"If a hedger is short cash he will buy futures.\r","index":"Not implemented","score":{"weight":0}}}},{"id":"si199484","class":"TODO::Senthil","title":"B) ","roles":{"textData":{}}},{"id":"si199488","class":"TODO::Senthil","title":"If a hedger is long cash, he will sell futures.  ","roles":{"textData":{}}},{"id":"si199488","class":"TODO::Senthil","roles":{"click":{"subtype":"button","question":"Slide199421q12"},"answer":{"title":"dummy title","index":-1,"score":{}}}},{"id":"si199484_a","class":"TODO::Senthil","roles":{"answer":{"title":"If a hedger is long cash, he will sell futures. \r","index":"Not implemented","score":{"weight":0}}}},{"id":"si199554","class":"TODO::Senthil","title":"C) ","roles":{"textData":{}}},{"id":"si199558","class":"TODO::Senthil","title":"A hedger always takes a position in the futures market that's opposite to his position in the cash market. ","roles":{"textData":{}}},{"id":"si199558","class":"TODO::Senthil","roles":{"click":{"subtype":"button","question":"Slide199421q12"},"answer":{"title":"dummy title","index":-1,"score":{}}}},{"id":"si199554_a","class":"TODO::Senthil","roles":{"answer":{"title":"A hedger always takes a position in the futures market that's opposite to his position in the cash market.\r","index":"Not implemented","score":{"weight":0}}}},{"id":"si199569","class":"TODO::Senthil","title":"D) ","roles":{"textData":{}}},{"id":"si199573","class":"TODO::Senthil","title":"The goal of hedging isn't to make money; it's to protect from losses. ","roles":{"textData":{}}},{"id":"si199573","class":"TODO::Senthil","roles":{"click":{"subtype":"button","question":"Slide199421q12"},"answer":{"title":"dummy title","index":-1,"score":{}}}},{"id":"si199569_a","class":"TODO::Senthil","roles":{"answer":{"title":"The goal of hedging isn't to make money; it's to protect from losses.\r","index":"Not implemented","score":{"weight":0}}}},{"id":"si199505","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide199421q12","for":"Slide199421q12"},"textData":{}}},{"id":"si199522","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide199421q12","for":"Slide199421q12"},"textData":{}}},{"id":"si199535","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide199421q12","for":"Slide199421q12"},"textData":{}}},{"id":"si199598","class":"TODO::Senthil","title":"Correct - A futures contract represents an obligation to make or take delivery, even though the customer need only deposit initial margin to open the position. The obligation means that, while a position is held, the customer is potentially liable for the full value of the contract, which may be unlimited. Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si199883","class":"TODO::Senthil","title":"Incorrect. The correct answer is A, B, C and D. Click anywhere or press ‘y’ to continue.  ","roles":{"textData":{}}},{"id":"Slide199421","class":"Question Slide","instance":"Question 1","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1602","si199458","si199477","si199488","si199558","si199573","si199505","si199522","si199535"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide199421"},"question":{"interactionId":"199438","quizId":733,"title":"Multiple Choice","text":"Select the statements below about hedging that are true. (Select all that apply)\r","ikc":true,"type":"knowledgeCheck","interactionType":"choice","ramdomized":false,"correctAnswers":["A","B","C","D"]}}},{"id":"Text_Caption_1609","class":"TODO::Senthil","instance":"Text_Caption_1609","title":"QUIZ ","roles":{"textData":{}}},{"id":"si205773","class":"TODO::Senthil","roles":{}},{"id":"si205696","class":"TODO::Senthil","title":"Hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset.  ","roles":{"textData":{}}},{"id":"si205711","class":"TODO::Senthil","title":"A) ","roles":{"textData":{}}},{"id":"si205715","class":"TODO::Senthil","title":"True ","roles":{"textData":{}}},{"id":"si205711_a","class":"TODO::Senthil","roles":{"answer":{"title":"True","index":"Not implemented","score":{"weight":0}}}},{"id":"si205722","class":"TODO::Senthil","title":"B) ","roles":{"textData":{}}},{"id":"si205726","class":"TODO::Senthil","title":"False ","roles":{"textData":{}}},{"id":"si205722_a","class":"TODO::Senthil","roles":{"answer":{"title":"False","index":"Not implemented","score":{"weight":0}}}},{"id":"si205861","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide205659q13","for":"Slide205659q13"},"textData":{}}},{"id":"si205878","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide205659q13","for":"Slide205659q13"},"textData":{}}},{"id":"si205891","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide205659q13","for":"Slide205659q13"},"textData":{}}},{"id":"si205730","class":"TODO::Senthil","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide205659q13"},"textData":{}}},{"id":"si205743","class":"TODO::Senthil","title":"Incorrect. The correct answer is True. Hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset. Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide205659q13"},"textData":{}}},{"id":"Slide205659","class":"Question Slide","instance":"Question 2","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1609","si205696","si205715","si205726","si205861","si205878","si205891"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide205659"},"question":{"interactionId":"205676","quizId":733,"title":"True/False","text":"Hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset.\r\r","ikc":false,"type":"graded","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"],"score":{"weight":10,"penalty":0}}}},{"id":"Text_Caption_1610","class":"TODO::Senthil","instance":"Text_Caption_1610","title":"QUIZ ","roles":{"textData":{}}},{"id":"si206143","class":"TODO::Senthil","instance":"Text_Caption_475","roles":{}},{"id":"si206066","class":"TODO::Senthil","instance":"Text_Caption_456","title":"The reduction in risk provided by hedging also typically results in a reduction in potential profits. ","roles":{"textData":{}}},{"id":"si206077","class":"TODO::Senthil","instance":"Text_Caption_471","title":"A) ","roles":{"textData":{}}},{"id":"si206081","class":"TODO::Senthil","instance":"Text_Caption_472","title":"True ","roles":{"textData":{}}},{"id":"si206077_a","class":"TODO::Senthil","instance":"48","roles":{"answer":{"title":"True","index":"Not implemented","score":{"weight":0}}}},{"id":"si206088","class":"TODO::Senthil","instance":"Text_Caption_473","title":"B) ","roles":{"textData":{}}},{"id":"si206092","class":"TODO::Senthil","instance":"Text_Caption_474","title":"False ","roles":{"textData":{}}},{"id":"si206088_a","class":"TODO::Senthil","instance":"50","roles":{"answer":{"title":"False","index":"Not implemented","score":{"weight":0}}}},{"id":"si206255","class":"TODO::Senthil","instance":"Button_147","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide206377q14","for":"Slide206377q14"},"textData":{}}},{"id":"si206267","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide206377q14","for":"Slide206377q14"},"textData":{}}},{"id":"si206279","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide206377q14","for":"Slide206377q14"},"textData":{}}},{"id":"si206118","class":"TODO::Senthil","instance":"SmartShape_19","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide206377q14"},"textData":{}}},{"id":"si206137","class":"TODO::Senthil","instance":"SmartShape_20","title":"Incorrect. The correct answer is True. The reduction in risk provided by hedging also typically results in a reduction in potential profits. Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide206377q14"},"textData":{}}},{"id":"Slide206377","class":"Question Slide","instance":"Question 3","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1610","si206066","si206081","si206092","si206255","si206267","si206279"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide206377"},"question":{"interactionId":"206022","quizId":733,"title":"True/False","text":"The reduction in risk provided by hedging also typically results in a reduction in potential profits.\r","ikc":false,"type":"graded","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"],"score":{"weight":10,"penalty":0}}}},{"id":"Text_Caption_1605","class":"TODO::Senthil","instance":"Text_Caption_1605","title":"KNOWLEDGE CHECK ","roles":{"textData":{}}},{"id":"si199947","class":"TODO::Senthil","instance":"Text_Caption_455","title":"Select the statements below about hedging that are true. (Select all that apply) ","roles":{"textData":{}}},{"id":"si199958","class":"TODO::Senthil","instance":"Text_Caption_460","title":"A) ","roles":{"textData":{}}},{"id":"si199962","class":"TODO::Senthil","instance":"Text_Caption_462","title":"If the investment you are hedging against makes money, you have also usually reduced your potential profit.  ","roles":{"textData":{}}},{"id":"si199962","class":"TODO::Senthil","roles":{"click":{"subtype":"button","question":"Slide200216q15"},"answer":{"title":"dummy title","index":-1,"score":{}}}},{"id":"si199958_a","class":"TODO::Senthil","roles":{"answer":{"title":"If the investment you are hedging against makes money, you have also usually reduced your potential profit. \r","index":"Not implemented","score":{"weight":0}}}},{"id":"si199969","class":"TODO::Senthil","instance":"Text_Caption_463","title":"B) ","roles":{"textData":{}}},{"id":"si199973","class":"TODO::Senthil","instance":"Text_Caption_464","title":"If the investment loses money, and your hedge was successful, you will have reduced your loss. ","roles":{"textData":{}}},{"id":"si199973","class":"TODO::Senthil","roles":{"click":{"subtype":"button","question":"Slide200216q15"},"answer":{"title":"dummy title","index":-1,"score":{}}}},{"id":"si199969_a","class":"TODO::Senthil","roles":{"answer":{"title":"If the investment loses money, and your hedge was successful, you will have reduced your loss.\r","index":"Not implemented","score":{"weight":0}}}},{"id":"si199980","class":"TODO::Senthil","instance":"Text_Caption_465","title":"C) ","roles":{"textData":{}}},{"id":"si199984","class":"TODO::Senthil","instance":"Text_Caption_466","title":"Hedging strategies typically involve derivatives, such as options and futures contracts. ","roles":{"textData":{}}},{"id":"si199984","class":"TODO::Senthil","roles":{"click":{"subtype":"button","question":"Slide200216q15"},"answer":{"title":"dummy title","index":-1,"score":{}}}},{"id":"si199980_a","class":"TODO::Senthil","roles":{"answer":{"title":"Hedging strategies typically involve derivatives, such as options and futures contracts.\r","index":"Not implemented","score":{"weight":0}}}},{"id":"si199991","class":"TODO::Senthil","instance":"Text_Caption_467","title":"D) ","roles":{"textData":{}}},{"id":"si199995","class":"TODO::Senthil","instance":"Text_Caption_468","title":"The cost of the hedge, whether it is the cost of an option–or lost profits from being on the wrong side of a futures contract–can't be avoided. ","roles":{"textData":{}}},{"id":"si199995","class":"TODO::Senthil","roles":{"click":{"subtype":"button","question":"Slide200216q15"},"answer":{"title":"dummy title","index":-1,"score":{}}}},{"id":"si199991_a","class":"TODO::Senthil","roles":{"answer":{"title":"The cost of the hedge, whether it is the cost of an option–or lost profits from being on the wrong side of a futures contract–can't be avoided.\r","index":"Not implemented","score":{"weight":0}}}},{"id":"si200030","class":"TODO::Senthil","instance":"Button_146","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide200216q15","for":"Slide200216q15"},"textData":{}}},{"id":"si200042","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide200216q15","for":"Slide200216q15"},"textData":{}}},{"id":"si200054","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide200216q15","for":"Slide200216q15"},"textData":{}}},{"id":"si200086","class":"TODO::Senthil","instance":"Text_Caption_469","title":"Correct - A futures contract represents an obligation to make or take delivery, even though the customer need only deposit initial margin to open the position. The obligation means that, while a position is held, the customer is potentially liable for the full value of the contract, which may be unlimited. Click anywhere or press ‘y’ to continue. ","roles":{"textData":{}}},{"id":"si200202","class":"TODO::Senthil","instance":"Text_Caption_470","title":"Incorrect. The correct answer is A, B, C and D. Click anywhere or press ‘y’ to continue.  ","roles":{"textData":{}}},{"id":"Slide200216","class":"Question Slide","instance":"Question 4","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1605","si199947","si199962","si199973","si199984","si199995","si200030","si200042","si200054"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide200216"},"question":{"interactionId":"199909","quizId":733,"title":"Multiple Choice","text":"Select the statements below about hedging that are true. (Select all that apply)\r","ikc":true,"type":"knowledgeCheck","interactionType":"choice","ramdomized":false,"correctAnswers":["A","B","C","D"]}}},{"id":"Text_Caption_1615","class":"TODO::Senthil","instance":"Text_Caption_1615","title":"QUIZ ","roles":{"textData":{}}},{"id":"si206756","class":"TODO::Senthil","instance":"Text_Caption_480","roles":{}},{"id":"si206679","class":"TODO::Senthil","instance":"Text_Caption_458","title":"Derivatives contracts on bonds, such as futures and options, provide one way to short the bond market, or to hedge an existing long position from a downturn. ","roles":{"textData":{}}},{"id":"si206690","class":"TODO::Senthil","instance":"Text_Caption_476","title":"A) ","roles":{"textData":{}}},{"id":"si206694","class":"TODO::Senthil","instance":"Text_Caption_477","title":"True ","roles":{"textData":{}}},{"id":"si206690_a","class":"TODO::Senthil","instance":"48_51","roles":{"answer":{"title":"True","index":"Not implemented","score":{"weight":0}}}},{"id":"si206701","class":"TODO::Senthil","instance":"Text_Caption_478","title":"B) ","roles":{"textData":{}}},{"id":"si206705","class":"TODO::Senthil","instance":"Text_Caption_479","title":"False ","roles":{"textData":{}}},{"id":"si206701_a","class":"TODO::Senthil","instance":"50_52","roles":{"answer":{"title":"False","index":"Not implemented","score":{"weight":0}}}},{"id":"si206868","class":"TODO::Senthil","instance":"Button_150","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide206990q16","for":"Slide206990q16"},"textData":{}}},{"id":"si206880","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide206990q16","for":"Slide206990q16"},"textData":{}}},{"id":"si206892","class":"TODO::Senthil","title":"Submit ","roles":{"click":{"subtype":"submit","question":"Slide206990q16","for":"Slide206990q16"},"textData":{}}},{"id":"si206731","class":"TODO::Senthil","instance":"SmartShape_21","title":"Correct - Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide206990q16"},"textData":{}}},{"id":"si206750","class":"TODO::Senthil","instance":"SmartShape_22","title":"Incorrect. The correct answer is True. Derivatives contracts on bonds, such as futures and options, provide one way to short the bond market, or to hedge an existing long position from a downturn. Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide206990q16"},"textData":{}}},{"id":"Slide206990","class":"Question Slide","instance":"Question 5","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1615","si206679","si206694","si206705","si206868","si206880","si206892"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide206990"},"question":{"interactionId":"206639","quizId":733,"title":"True/False","text":"Derivatives contracts on bonds, such as futures and options, provide one way to short the bond market, or to hedge an existing long position from a downturn.\r","ikc":false,"type":"graded","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"],"score":{"weight":10,"penalty":0}}}},{"id":"Text_Caption_1616","class":"TODO::Senthil","instance":"Text_Caption_1616","title":"QUIZ ","roles":{"textData":{}}},{"id":"si207138","class":"TODO::Senthil","instance":"Text_Caption_486","roles":{}},{"id":"si207061","class":"TODO::Senthil","instance":"Text_Caption_481","title":"Hedging requires a person to pay money for the protection it provides, known as the insurance. 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","roles":{"click":{"subtype":"button","question":"Slide207372q17"},"textData":{}}},{"id":"si207132","class":"TODO::Senthil","instance":"SmartShape_24","title":"Incorrect. The correct answer is False. Hedging requires a person to pay money for the protection it provides, known as the PREMIUM. Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide207372q17"},"textData":{}}},{"id":"Slide207372","class":"Question Slide","instance":"Question 6","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1616","si207061","si207076","si207087","si207250","si207262","si207274"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide207372"},"question":{"interactionId":"207017","quizId":733,"title":"True/False","text":"Hedging requires a person to pay money for the protection it provides, known as the insurance.\r","ikc":false,"type":"graded","interactionType":"true-false","ramdomized":false,"correctAnswers":["B"],"score":{"weight":10,"penalty":0}}}},{"id":"Text_Caption_1618","class":"TODO::Senthil","instance":"Text_Caption_1618","title":"QUIZ ","roles":{"textData":{}}},{"id":"si207878","class":"TODO::Senthil","instance":"Text_Caption_500","roles":{}},{"id":"si207801","class":"TODO::Senthil","instance":"Text_Caption_495","title":"The hedger is not focused on making a profit when she buys and sells futures. Instead, she’s interested in shifting her risk of loss on the cash commodity as the result of adverse price changes. She does this by making a futures purchase or sale to serve as a temporary substitute for a cash market transaction that she’ll make at a later date.  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","roles":{"click":{"subtype":"button","question":"Slide208112q18"},"textData":{}}},{"id":"Slide208112","class":"Question Slide","instance":"Question 7","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1618","si207801","si207816","si207827","si207990","si208002","si208014"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide208112"},"question":{"interactionId":"207757","quizId":733,"title":"True/False","text":"The hedger is not focused on making a profit when she buys and sells futures. Instead, she’s interested in shifting her risk of loss on the cash commodity as the result of adverse price changes. She does this by making a futures purchase or sale to serve as a temporary substitute for a cash market transaction that she’ll make at a later date. \r","ikc":false,"type":"graded","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"],"score":{"weight":10,"penalty":0}}}},{"id":"Text_Caption_1619","class":"TODO::Senthil","instance":"Text_Caption_1619","title":"QUIZ ","roles":{"textData":{}}},{"id":"si208248","class":"TODO::Senthil","instance":"Text_Caption_507","roles":{}},{"id":"si208171","class":"TODO::Senthil","instance":"Text_Caption_502","title":"Bonds are quoted at a percentage of the par value. Therefore, if a bond price drops to $990, it will be quoted at 99, which is 99% of the par value of $1,000. If the price drops to $935, it will be quoted at 93.5, which means 93.5% of the par value of $1,000.  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","roles":{"click":{"subtype":"button","question":"Slide208482q19"},"textData":{}}},{"id":"si208242","class":"TODO::Senthil","instance":"SmartShape_30","title":"Incorrect. The correct answer is True. Bonds are quoted at a percentage of the par value. Therefore, if a bond price drops to $990, it will be quoted at 99, which is 99% of the par value of $1,000. If the price drops to $935, it will be quoted at 93.5, which means 93.5% of the par value of $1,000. Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide208482q19"},"textData":{}}},{"id":"Slide208482","class":"Question Slide","instance":"Question 8","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1619","si208171","si208186","si208197","si208360","si208372","si208384"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide208482"},"question":{"interactionId":"208131","quizId":733,"title":"True/False","text":"Bonds are quoted at a percentage of the par value. Therefore, if a bond price drops to $990, it will be quoted at 99, which is 99% of the par value of $1,000. If the price drops to $935, it will be quoted at 93.5, which means 93.5% of the par value of $1,000.\r\r","ikc":false,"type":"graded","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"],"score":{"weight":10,"penalty":0}}}},{"id":"Text_Caption_1617","class":"TODO::Senthil","instance":"Text_Caption_1617","title":"QUIZ ","roles":{"textData":{}}},{"id":"si207508","class":"TODO::Senthil","instance":"Text_Caption_493","roles":{}},{"id":"si207431","class":"TODO::Senthil","instance":"Text_Caption_488","title":"The best time in which to hedge is when the relationship between cash and futures is at the most favorable basis. 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","roles":{"click":{"subtype":"button","question":"Slide207742q20"},"textData":{}}},{"id":"si207502","class":"TODO::Senthil","instance":"SmartShape_26","title":"Incorrect. The correct answer is True. The best time in which to hedge is when the relationship between cash and futures is at the most favorable basis. Click anywhere or press ‘y’ to continue. ","roles":{"click":{"subtype":"button","question":"Slide207742q20"},"textData":{}}},{"id":"Slide207742","class":"Question Slide","instance":"Question 9","thumbnail":"","children":["Text_Caption_259","Text_Caption_2119","Text_Caption_1617","si207431","si207446","si207457","si207620","si207632","si207644"],"roles":{"slide":{"durationInFrames":90},"navigation":{"navid":"Slide207742"},"question":{"interactionId":"207391","quizId":733,"title":"True/False","text":"The best time in which to hedge is when the relationship between cash and futures is at the most favorable basis.\r","ikc":false,"type":"graded","interactionType":"true-false","ramdomized":false,"correctAnswers":["A"],"score":{"weight":10,"penalty":0}}}},{"id":"Text_Caption_1620","class":"TODO::Senthil","instance":"Text_Caption_1620","title":"QUIZ ","roles":{"textData":{}}},{"id":"si208618","class":"TODO::Senthil","instance":"Text_Caption_514","roles":{}},{"id":"si208541","class":"TODO::Senthil","instance":"Text_Caption_509","title":"Because there are so many different types of options and futures contracts, an investor can hedge against nearly anything, including stocks, commodities, interest rates, or currencies.  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