Basis Risk Occurs on a Loan Commitment Because the Spread

question 48

True/False

Basis risk occurs on a loan commitment because the spread of a pricing index over the cost of funds may vary.

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Definitions:

Draft

A preliminary version of a document or plan, subject to revision and refinement.

Negotiable Instruments

Financial documents that promise payment to the bearer or named party and can be transferred by endorsement or delivery, such as checks, promissory notes, and bills of exchange.

Writing Requirement

A legal criterion under certain statutes, such as the Statute of Frauds, that mandates certain contracts must be in written form to be legally enforceable.

Promissory Note

A written promise to pay a specified sum of money to a designated person or entity, at a determinable future time or on demand.