The futures markets work to offset risk, because the risk of change in basis is generally:
A) Easy to predict due to asset price changes being easy to predict
B) Well-known
C) Less than the risk of changes in the price or yield of an asset
D) A and B above
E) None of the above

Question

Quizplus · Accepted Answer

The futures markets help offset risk primarily because the risk of change in basis (the difference between the spot price of an asset and the futures price of the same asset) is generally considered to be less than the risk associated with changes in the price or yield of the asset itself. This allows participants to hedge against price movements more effectively.

The Futures Markets Work to Offset Risk, Because the Risk