Basis Risk Exists Because the Spot Rate of an Underlying

question 28

True/False

Basis risk exists because the spot rate of an underlying asset always keeps the same price relationship to contracts purchased or sold in the futures market for that asset.

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Definitions:

Bilateral

Pertains to agreements or contracts involving two parties where each side is obligated to fulfill certain duties.

Unilateral

An action or agreement in which only one party makes a promise or fulfills a requirement, without requiring a reciprocal action.

Express Agreement

A contract or agreement in which the terms are explicitly stated and agreed upon by all parties involved.

Illegal

Activities or actions that are prohibited by law and subject to penalties.