Answer: There is greater liquidity in some futures contract maturities than others.

## Explanation **D is correct.** Stack-and-roll hedging programs are useful in working around the problem of a lack of liquidity in certain long-term maturity futures contracts. A stack-and-roll hedging strategy involves the use of short-maturity futures contracts (for example, those with 1 or 2 months to expiration) to hedge a longer-term exposure. The hedge is closed out prior to the delivery period and is then "rolled" to a new position in short-maturity futures, and this process is repeated as the contracts used to hedge approach their delivery period. **Why other options are incorrect:** - **A is incorrect:** It is difficult to hedge exposure appropriately without knowing how much exposure to hedge. Also, the stack-and-roll strategy uses a series of short-term hedges to replace a long-term hedge, so knowing the timing of the underlying exposure being hedged is very useful. - **B is incorrect:** Cash flows are still required to be exchanged every time the intermittent futures contract is settled. - **C is incorrect:** The hedger is subject to multiple risks. This is because there is some uncertainty as to the difference between the futures prices every time an old contract is closed out and a new one is entered. The results of a stack-and-roll hedging program should be similar to those of a long-term hedge.

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