Which One of the Following Statements Regarding "Basis" Is True

question 42

Multiple Choice

Which one of the following statements regarding "basis" is true?

• A) The basis is the difference between the futures price and the spot price.
• B) The basis risk is borne by the hedger.
• C) A short hedger suffers losses when the basis decreases.
• D) The basis increases when the futures price increases by more than the spot price.
• E) The basis is the difference between the futures price and the spot price, basis risk is borne by the hedger, and basis increases when the futures price increases by more than the spot price.

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Definitions:

Credit

An entry recording an increase in assets or decrease in liabilities and equity on the company’s balance sheet, or the provision of goods or services in exchange for a promise of payment in the future.

Equity

The value of an ownership interest in property, including shareholders' equity in a company, represented by the assets minus liabilities.

Revenues

The total amount of money generated by the sale of goods, services, or other income for a company before any expenses are deducted.

Equity

The value of an asset after deducting the amount of all liabilities on that asset, representing an owner's interest in a company.