Explain Why Basis Risk Is Likely to Be a Problem

question 81

Essay

Explain why basis risk is likely to be a problem when hedging long-term interest rates using futures contracts.

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Definitions:

Hypothetical Question

A question based on assumptions or hypothetical situations, used to explore outcomes or legal principles.

Closed-ended Question

A type of question formulated to receive a specific, often "yes" or "no", answer.

Active Listening

The act of listening attentively to the speaker’s message and responding by giving appropriate feedback to show that you understand what the speaker is saying. Restating the speaker’s message in your own words to confirm that you accurately interpreted what was said.

Passive Listening

The act of listening attentively to the speaker's message and responding to the speaker by providing verbal or nonverbal cues that encourage the speaker to continue. In effect, saying “I'm listening, please go on.”