Basis risk refers to the variable spread between a lending rate and a borrowing rate, or between any two interest rates or prices.

Question

Quizplus · Accepted Answer

This statement accurately defines basis risk. Basis risk is the risk that arises from imperfect correlation between the reference rate of a financial instrument and the hedging instrument used to protect the position. It can also refer to the risk of loss from a mismatch between cash and futures transactions, or any other situation where changes in market conditions affect different financial instruments in different ways.

Basis Risk Refers to the Variable Spread Between a Lending