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:

Equity

The value of an ownership interest in property, including shareholders' equity in a corporation, representing the residual value to shareholders after debts and liabilities have been settled.

Efficiency

The ability to accomplish or produce a desired result with the minimum amount of waste, effort, or inefficiency.

Trade-Off

A scenario where one characteristic or element is sacrificed to acquire a different characteristic or element.

Price System

The price system is the mechanism through which prices are determined for goods and services in an economy, facilitating the allocation of resources, signaling what to produce and consume, and coordinating economic activity.