Which One of the Following Statements Regarding "Basis" Is True

question 42

Multiple Choice

Which one of the following statements regarding "basis" is true?

• A) The basis is the difference between the futures price and the spot price.
• B) The basis risk is borne by the hedger.
• C) A short hedger suffers losses when the basis decreases.
• D) The basis increases when the futures price increases by more than the spot price.
• E) The basis is the difference between the futures price and the spot price, basis risk is borne by the hedger, and basis increases when the futures price increases by more than the spot price.

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Definitions:

Zero Economic Profit

A situation where a firm earns just enough revenue to cover its total costs, including both explicit and implicit costs.

Monopolistic Competition

A market structure in which many companies sell products that are similar but not identical, allowing for competition but with some pricing power for producers.

Profit-Maximizing

A strategy or approach used by firms to determine the price and output level that delivers the maximum profit.

Long-Run Equilibrium

A state in which all firms in a market are producing at their minimum long-run average cost, with no incentive to enter or exit the market.