Why Does Basis Risk Occur

question 24

Multiple Choice

Why does basis risk occur?

• A)Changes in the spot asset's price are not perfectly correlated with changes in the price of the asset delivered under a forward or futures contract.
• B)The daily marking-to-market process enables an FI manager to close out a futures position by taking an exactly offsetting position.
• C)Spot and futures contracts are traded in different markets with different demand and supply functions.
• D)None of these.
• E)Changes in the spot asset's price are not perfectly correlated with changes in the price of the asset delivered under a forward or futures contract, and spot and futures contracts are traded in different markets with different demand and supply functions.

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Definitions:

Internet

The Internet is a global network of interconnected computers and servers that facilitates the exchange of data, communication, and information across the world.

Multiple Jurisdictions

The involvement of more than one legal authority or governmental entity, each with its own set of laws and regulations, in a particular matter or case.

Intrusion Upon Seclusion

A legal concept involving the invasion of a person's privacy without their consent, leading to possible legal action.

Privacy Invasion

The violation or breach of someone's right to keep their personal information confidential and control its use.