The Risk That Arises Because the Value of the Futures

question 39

Multiple Choice

The risk that arises because the value of the futures contract will not be perfectly correlated with the firm's exposure is called:

• A)commodity price risk.
• B)basis risk.
• C)liquidity risk.
• D)speculation risk.

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Definitions:

Uncollectible Accounts

Accounts receivable that are deemed to be uncollectible, leading to their removal from the accounts through a write-off process.

Write Off

The accounting action of declaring that an asset is partially or completely worthless.

Factored Accounts Receivable

The process of selling accounts receivable to a third party at a discount to quickly generate cash and reduce risk of non-payment.