How Can Basis Risk Arise in an FI's Operations

question 15

Multiple Choice

How can basis risk arise in an FI's operations?

• A)Basis risk arises because loan rates and deposit rates are inversely related in their movements over time.
• B)Basis risk arises because loan rates and deposit rates are perfectly correlated in their movements over time.
• C)Basis risk arises because loan rates and deposit rates are not correlated in their movements over time.
• D)Basis risk arises because loan rates and deposit rates are not perfectly related in their movements over time.

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Definitions:

Specific Environment

The external factors and influences that are directly relevant and impactful to an organization's operations, including competitors, customers, and suppliers.

Dynamic Force

Represents the energy or motivation that drives change and movement within various contexts, often related to organizations or personal development.

General Environment

The overall conditions and factors external to a business that affect its strategy and performance, such as economic, social, and political conditions.

Wheel of Innovation

A conceptual tool used to illustrate the cyclic process of innovation, from idea generation to implementation.