One Reason for Basis Risk in an Interest Rate Swap

question 75

True/False

One reason for basis risk in an interest rate swap is that changes in the index on the variable rate portion of the swap may not be perfectly correlated with changes in the index on the balance sheet portion of the liabilities.

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Definitions:

Content Validity

The extent to which a test measures all aspects of the concept or construct it is intended to assess.

Cronbach's Alpha

A measure of internal consistency or reliability of the items in a test or questionnaire, indicating how closely related the items are as a group.

Correlation Coefficients

Correlation coefficients are statistical measures that quantify the degree to which two variables change in relation to each other, indicating both the strength and direction of this relationship.

Concurrent Validity

The extent to which test scores correlate with scores from other related measures assessed at the same time.