Basis Risk Occurs Because It Is Generally Impossible to

question 6

Multiple Choice

Basis risk occurs because it is generally impossible to

• A)hedge unanticipated rate changes.
• B)exactly predict interest rate changes.
• C)exactly match the terms of the hedging instrument with the terms of the asset or liability at risk.
• D)find negatively correlated asset prices.
• E)All of these choices are correct.

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Definitions:

Transportation Costs

Expenses associated with moving goods or services from one location to another, including fuel, labor, and maintenance.

FOB Origin Pricing

The “free on board” (FOB) price the seller quotes that includes only the cost of loading the product onto the vehicle and specifies the name of the location where the loading is to occur (seller’s factory or warehouse).

Cost Of Loading

The expenses incurred in the process of loading goods onto a conveyance for transportation, such as labor, equipment, and material handling costs.

Trade-In Allowance

A discount or credit granted for the return of something old when purchasing something new.