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The Lack of Perfect Correlation Between Spot and Futures Prices

question 7

True/False

The lack of perfect correlation between spot and futures prices implies that most hedges will have some basis risk.


Definitions:

Annual Percentage Rates

The yearly percentage charged for taking out a loan or gained from an investment, including all fees or extra expenses.

Quoted Rates

The publicly listed interest rates or prices for financial instruments or bank deposits.

Effective Annual Rate

The interest rate on an investment or loan, annualized for compounding over a given period more than once a year.

APR

Annual Percentage Rate; a measure of the cost of credit, expressed as a yearly interest rate.

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