Business, 21.05.2020 05:03 fernandaretanaoxwln0

Pear, Inc. is a manufacturer that is heavily dependent on plastic parts shipped from Malaysia. Pear wants to hedge its exposure to plastic price shocks over the next 7.5 months. Futures contracts, however, are not readily available for plastic. After some research, Pear identifies futures contracts on other commodities whose prices are closely correlated to plastic prices. Futures on Commodity A have a correlation of 0.85 with the price of plastic, and futures on Commodity B have a correlation of 0.92 with the price of plastic Futures on both Commodity A and Commodity B are available with 6-month and 9-month expirations. Ignoring liquidity considerations, which contract would be the best to minimize basis risk?(a) Futures on Commodity A with 6 months to expiration(b) Futures on Commodity A with 9 months to expiration(c) Futures on Commodity B with 6 months to expiration(d) Futures on Commodity B with 9 months to expiration

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Pear, Inc. is a manufacturer that is heavily dependent on plastic parts shipped from Malaysia. Pear...

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