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:

Cognitive Therapy

A form of psychotherapy that seeks to alleviate psychological stresses by correcting faulty conceptions and self-signals.

Systematic Desensitization

A behavioral therapy technique used to treat phobias and other behavior disorders through controlled exposure to the stimuli causing the disorder, combined with relaxation techniques to reduce anxiety.

Psychodynamic Therapy

A therapeutic approach emphasizing the exploration of the unconscious mind and its influence on human behavior, rooted in psychoanalytic theory.

Cognitive Therapy

A form of psychotherapy that focuses on changing unhelpful thinking patterns, beliefs, and attitudes to improve emotional regulation and develop personal coping strategies.