Basis risk on a futures contract is:
A) The risk of an adverse change in the futures price
B) The risk of an adverse change in the spread between futures and cash prices
C) The progressive illiquidity of a futures contract as it approaches expiry
D) The risk of a divergence between the futures price and the final fixing of the underlying interest rate

Question

Quizplus · Accepted Answer

Basis risk on a futures contract is the risk of an adverse change in the spread between futures and cash prices. This means that even if the futures price moves in the direction you expected, the difference between the futures price and the cash price may widen, resulting in a loss.

Basis Risk on a Futures Contract Is