Basis risk is the risk that the futures price and the spot price of an asset do not move in sync, which can lead to imperfect hedging.

Here's the explanation for each choice:

1. The asset underlying the futures is not identical to the asset to be hedged: This can cause basis risk because the prices of the two assets may not move together perfectly. For example, if you are trying to hedge a position in a specific stock using a futures contract on a stock index, the prices of the stock and the index may not move together perfectly, leading to basis risk.

2. The futures price is marked to market: This can cause basis risk because the futures price is adjusted daily to reflect its current market value, while the spot price of the asset being hedged may not be. This can lead to discrepancies between the futures price and the spot price, leading to basis risk.

3. The maturity of the futures contract does not match the maturity of the hedge: This can cause basis risk because the prices of futures contracts with different maturities may not move together perfectly. If the maturity of the futures contract does not match the maturity of the hedge, the prices may not move together perfectly, leading to basis risk.

So, the correct answer is: All the above.

Question

Basis risk is the risk that the futures price and the spot price of an asset do not move in sync, which can lead to imperfect hedging.

Here's the explanation for each choice:

1. The asset underlying the futures is not identical to the asset to be hedged: This can cause basis risk because the prices of the two assets may not move together perfectly. For example, if you are trying to hedge a position in a specific stock using a futures contract on a stock index, the prices of the stock and the index may not move together perfectly, leading to basis risk.

2. The futures price is marked to market: This can cause basis risk because the futures price is adjusted daily to reflect its current market value, while the spot price of the asset being hedged may not be. This can lead to discrepancies between the futures price and the spot price, leading to basis risk.

3. The maturity of the futures contract does not match the maturity of the hedge: This can cause basis risk because the prices of futures contracts with different maturities may not move together perfectly. If the maturity of the futures contract does not match the maturity of the hedge, the prices may not move together perfectly, leading to basis risk.

So, the correct answer is: All the above.

Knowee AI · Accepted Answer

Basis risk is the risk that the futures price and the spot price of an asset do not move in sync, which can lead to imperfect hedging.

Here's the explanation for each choice:

1. The asset underlying the futures is not identical to the asset to be hedged: This can cause basis risk because the prices of the two assets may not move together perfectly. For example, if you are trying to hedge a position in a specific stock using a futures contract on a stock index, the prices of the stock and the index may not move together perfectly, leading to basis risk.

2. The futures price is marked to market: This can cause basis risk because the futures price is adjusted daily to reflect its current market value, while the spot price of the asset being hedged may not be. This can lead to discrepancies between the futures price and the spot price, leading to basis risk.

3. The maturity of the futures contract does not match the maturity of the hedge: This can cause basis risk because the prices of futures contracts with different maturities may not move together perfectly. If the maturity of the futures contract does not match the maturity of the hedge, the prices may not move together perfectly, leading to basis risk.

So, the correct answer is: All the above.

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