Which of the Following Increases Basis Risk

question 4

Multiple Choice

Which of the following increases basis risk?

• A) A large difference between the futures prices when the hedge is put in place and when it is closed out
• B) Dissimilarity between the underlying asset of the futures contract and the hedger's exposure
• C) A reduction in the time between the date when the futures contract is closed and its delivery month
• D) None of the above

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Definitions:

Interest Receivable

The amount of interest that has been earned but not yet received in cash.

Total Proceeds

The total amount received from a transaction, including the sale of assets, securities, or other property, before any deductions or expenses.

Sale

The exchange of a good or service for money; a transaction between two parties where the buyer acquires ownership of the item.

Interest Revenue

Income earned from lending money or other types of investments that yield interest.