Basis Risk Occurs Because It Is Generally Impossible to

question 31

Multiple Choice

Basis risk occurs because it is generally impossible to

• A)hedge unanticipated rate changes.
• B)exactly predict interest rate changes.
• C)exactly match the terms of the hedging instrument with the terms of the asset or liability at risk.
• D)find negatively correlated asset prices.
• E)All of the options.

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Definitions:

Sample Statistic s

Calculated value (such as mean or standard deviation) from a sample of data, used to infer characteristics of the entire population.

Standard Error

A measure of the statistical accuracy of an estimate, calculated as the standard deviation of the sampling distribution of a statistic.

Probability Distribution

A function that describes the likelihood of different outcomes in an experiment.

Sample Mean

The average value of all the measurements in a sample, calculated by adding all the values and dividing by the number of observations.