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:

Grammatical Mistake

An error in the use of language rules in writing or speaking.

Red Herring Fallacy

A response is directed toward a conclusion that is different from that proposed by the original argument.

Irrelevant Information

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Large Fish

Typically refers to fish species that grow significantly larger than others, often sought after by fishermen and considered important in marine ecosystems.