Correct Answer: C

Explanation:

The Metallgesellschaft case in 1993 is a classic example of cash flow mismatch risk. The company used short-term futures contracts to hedge long-term forward commitments in oil. When oil prices fell, Metallgesellschaft faced substantial margin calls on their futures positions while their long-term forward contracts showed paper gains that couldn't be realized immediately. This created a severe liquidity crisis despite having a theoretically sound hedging strategy.

Why other options are incorrect:

• A: This describes the Northern Rock case in 2007, where public disclosure of emergency borrowing from the Bank of England triggered a bank run.
• B: This refers to the Long-Term Capital Management (LTCM) case in 1998, where positive feedback trading in illiquid instruments amplified losses during the Russian debt crisis.
• D: Both forwards and futures can effectively hedge commodities exposure, but the Metallgesellschaft case specifically demonstrates the liquidity risk created by cash flow mismatches when using futures contracts with margin requirements.