22-65 Why Does Basis Risk Occur

question 9

Multiple Choice

22-65 Why does basis risk occur?

• A)Changes in the spot asset's price are not perfectly correlated with changes in the price of the asset delivered under a forward or futures contract.
• B)The daily marking-to-market process enables an FI manager to close out a futures position by taking an exactly offsetting position.
• C)Spot and futures contracts are traded in different markets with different demand and supply functions.
• D)Answers B and C only.
• E)Answers A and C only.

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Definitions:

Naturalistic Observation

A research method in which subjects are observed in their natural environment without any manipulation by the researcher, used to study behavior in a real-world setting.

Longitudinal

A type of study or research that follows the same subjects over a period of time.

Attachment

A deep and enduring emotional bond that connects one person to another across time and space, often discussed in the context of child development theories.

Harlow's Studies

Research conducted by psychologist Harry Harlow, primarily known for his work on maternal-separation, dependency needs, and social isolation experiments on rhesus monkeys.