Basis risk refers to the risk:
A) associated with anticipated price movements in the cash market.
B) associated with unanticipated price movements on the underlying asset.
C) of default on the futures contract.
D) from a change in the spread between the price on the commodity or financial security in the physical market and the price of the related futures contract.

Question

Quizplus · Accepted Answer

Basis risk is the risk that arises from a change in the spread between the price on the commodity or financial security in the physical market and the price of the related futures contract. This risk is particularly relevant for hedgers who use futures contracts to offset the risk of adverse price movements in the physical market.

Basis Risk Refers to the Risk