Which of the Following Increases Basis Risk

question 4

Multiple Choice

Which of the following increases basis risk?

• A) A large difference between the futures prices when the hedge is put in place and when it is closed out
• B) Dissimilarity between the underlying asset of the futures contract and the hedger's exposure
• C) A reduction in the time between the date when the futures contract is closed and its delivery month
• D) None of the above

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Definitions:

Administrative Costs

Expenses related to the general operation of a business that are not directly tied to a specific project or product.

Maintenance Department

A division within an organization responsible for the upkeep, repair, and smooth running of equipment and facilities.

Floor Space

The total area available for use within a building, often measured in square feet or square meters, important for planning and utilization.

Maintenance Expenses

Costs incurred in the upkeep of property or equipment to ensure its continued functionality and efficiency.